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WSB vs Wall Street / Gamestop Stock and others blown up by Subreddit
- Thread starter Kasper
- Start date
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I've been following this for a a couple of days and finally stuck £100 into GME shares today for the lulz. Wish I did it yesterday at $80 instead of nearly $300 but I'm £20 up in a couple of hours already. I don't care if it drops like a stone, but I hope they can push it high enough to cover a new exercise bike for the loft. Apparently the shorts are due by the end of the week so as long as the sellers hold out the price will exponentially rise (or so I understand, never traded stocks before.)
Ok, ok, cool, I think I get it now, but would you mind explaining it to be one more time because I have no idea what you just said.
How does this work by the way? Why are short sellers 'squeezed'? Can't they wait till this dies down and the stock price drops?
Or are they legally bounded to buy shares on a certain moment and WSB investors are raising the price to that moment?
Or are they legally bounded to buy shares on a certain moment and WSB investors are raising the price to that moment?
Watch the episode of Billions called The Short Squeeze, it’s exactly that situation.
Yes, it could be said you are taking a position against the short, I guess. Most of the people holding are institutional and don't intend to sell it anyway. And whether a share is worth shorting really can be a grey area. Tesla being a case in point.
I think I get it. Cheers!
Yes, they are mandated to buy the stock at the date that their contract expires. Also until that date, the bigger the margin between their position and the actual price of the stock gets, the larger the chance that their position is called and they have to stump up capital because the lender of the shares is then concerned that the risk is too high and that the short seller won't be able to pay up their loss otherwise. The fear of their position being called then causes the short sellers to buy stock themselves to cover their losses which in turn drives the price up even more.
Would it be wise to buy stock now or has it reached its max limit with the only way being down now?
Someone please help.
Someone please help.
If only they’d realise how much that power could be used more often.
ONLY UP. MOON!
There are arguments that shorting should not be illegal, and if you make shorting illegal, then the market bubble becomes even bigger. Essentially, shorting kind of makes the market be a bit less artificial (though nevertheless, the bubbles happen, as it is right now).
But, shorting has always been extremely dangerous. And shorting above 140% is beyond reckless, in fact, it is illegal (after 2008 crisis, naked shorting became illegal), but as it can be seen it is still happening.
Anyway, this might be good. The losses to wall street are going to be in tens of billions (conservative estimation) only from GME. And something similar, but on a much smaller scale is going on with another few companies. When the dust settles, Melvin and probably other hedge funds are going to go bakrupt.
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Melvin Capital alone lost 3b already and the options don't expire until Friday. It's going to be far, far higher.
Sorry, I obviously meant tens of billions. Melvin had lost over 3B on Friday, since then the price has gone from $75 to $350, the number of shorts hasn't significantly decreased. At current prices, the losses should already be over 30B dollars, if it increases more, God knows what is going to happen.
I think those hedge funds who can afford to pay interests for their shorts will continue doing so until the dust settles. The others are going to die. Clearly, Citadel and co. bailing Melvin out yesterday was to protect their positions and avoid an infinite squeeze. So far, it did not work out and despite using every illegal strategy in the book, it is not working.
I am so happy about this, though of course, if it escalated even further, it can be the beginning of the end for this bull market.
Short selling being a thing is just... bizarre.
Revan, you're drinking the WSB koolaid a bit too much me thinks. The losses are very real, not just at Melvin but at other HFs too. But who even knows what the outcome of this is for the banks... they might even be coming out ahead depending on where they're exposed and where they're not.
Not if it is tied to personal collateral. But yeah the overall nature of this is madness.
Let's see. Melvin got already screwed, but for sure other hedge funds have had billions in losses. And as importantly, the shorter are going to force to buy 7 million shared on Friday if the price remains above $115 (the higher it is, the more expensive those shares are).
They are essentially fecked. Which is why they are doing even more illegal things than usual. Musk yesterday pissed on their funeral, but as things are going, they won't be even able to afford a funeral.
What is illegal then, since you're making the claim?
Short interest is still 139.7%. They're fecked.
It is extremely likely that Melvin is lying that it has closed its short positions, so claiming that (by lying) is market manipulation. Brokers starting to disallow people buying in GME (and other companies). Propaganda in CNBC is a kind of market manipulation.
And well, the entire naked shorting is kinda illegal.
Naked short selling is illegal, but do you know what the technical definition is, and do you know if anyone here practiced it?
Why is it extremely likely that they didn't close? Short interest doesn't have to go down if someone else was willing to go short to take it off them. Also we don't have Exchange reported short interest on GME since Jan 15th.
Do you have any evidence that they're behind any of the broker restrictions on trading the stock?
I have to question because this narrative is just to flimsy right now, people are stating with certainty things that aren't knowable. I've said since yesterday that they both shorted a stock that was too undervalued, and that was too shorted. Its been a fatal mistake for them and no one needs to have any pity. But that doesn't mean it makes everything a random on WSB spews the whole truth about the matter.
How do we know their options don't expire until Friday? Is this public information?
Kind of. I'm assuming its based on open interest. Too late to buy calls anyway due to the ridiculously high volatility. I did buy LEAPS on NOK 3 days ago - pure speculation but cheap and worth a punt. Up 400%
It could be that Melvin sold their short position, for say 100 dollars and capped their losses at that. So the next fella to pick up the short is starting from 100 dollars.
EDIT - Completely missed eightball having already posted the same tweet with a different reply.
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So am I supposed to feel bad and burn a candle for these short sellung hedgefund dudes or can I just point and laugh at them while they go down in flames?
To me a professional stock trader ranks below used car salesman and mob hitman in the ethical ladder of life, so feck em.
To me a professional stock trader ranks below used car salesman and mob hitman in the ethical ladder of life, so feck em.
Yes, you can browse the available options for a specific stock. At the moment there are at least 20 million shares that need to be purchased on Friday. Over 200,000 options expiring 29th Jan.
Yes and yes, sort of
They can just hold on until the price drops, but it costs money. Melvin were paying $300m a day on overnight finance costs last I heard. In the US you can exercise options early but it's rare, I'm not sure if it can be refused either.
At the exercise date, if the market is above the strike price, you have to deliver the shares whatever the cost to you is.
Yes, the options contract contains the exercise date. There are a bunch out there that were for Jan 29th.
Fascinating, thanks.
Makes one wonder why this Gamestop-esque event doesn't happen more often.
This, its bound to a certain period of time (is my understanding) with D Day before the week is out.
Because usually hedge funds aren't so obscenely stupid enough that they short a company by more shares than even exist. They created the situation that's currently fecking them from hubris and disdain for the public and not realising that people might spot them overreaching and punish them for it. And I highly doubt this will happen again, every hedge fund out there must be or already has revised their models to ensure they can't manufacture this situation again.
People are confusing a bit when it comes to short stock positions and options, as well as how they (likely) relate to Melvin in particular.
Short stock positions do not expire. You borrow the stock and sell it, if the position is going against you your broker (or in the case of a hedge fund its called a primer broker and the relationship is more complex than between retail investors and a broker) will want you to add cash to the collateral account so that they have something in case the position continues to go against you, and you lose more than you even had in the first place. As someone somewhere mentioned, when SAC and Citadel funded Melvin on Monday it was possibly just to cover the collateral that whoever Melvin's PB is was requiring (PB for them would likely be Morgan Stanley, Goldman Sachs, JP Morgan, or something similar).
In options if you have a negative view on a stock you can buy puts which give you the right to sell someone the stock at an agreed upon price (the strike) and that will work in your favor if the stock if below that price. If you have a positive view you can buy calls that give you the right to buy the stock at an agreed strike and that will work in your favor if the stock is above that price.
What seems to have Melvin in trouble is a short position, not options. Their 9/30/2020 13F position filing shows that they owned a number of Puts on GME, expressing their negative view. But the thing is that you can't have an infinite potential loss from owning options, be them puts. All that can happen is you pay for the puts and at worst they are worth 0, and you lose whatever you paid. You can have an infinite potential loss from selling calls, but we don't know that Melvin did that. That leaves that what was likely creating their ever multiplying losses was just a short position on the stock.
But options and their expiration do have to do with the crazy rally as well, and that's on the side of the Calls that the WSB crowds and others have been buying. Because there's so many expirations and strike prices for options, the likelihood that you'll fund someone that wants to take the exact opposite position to the one you're looking to sell/buy is low. So banks and others run market-making operations on the options. But the banks don't want to stay on the other way of your trades either. Good for them that Black and Scholes figured out a bunch of good stuff on how to value options and calculate equivalents in stock exposure, so they offset whatever the exposure generated by each trade is by buying or shorting the underlying stock as appropriate.
Where this adds to the squeeze is that if someone buys a call option on something but with a strike far far ahead of the current price, the model will generally tell you that you don't need to buy a lot of that stock to offset your exposure from selling that call (unless you input a very very high volatility in your calculation). But in the case here of a stock that's just skyrocketed, as the stock goes up you have to buy more and more to cover the potential exposure. At the point when the option is finally above its strike (in the money) and at expiration, you need to fill up and buy the entire underlying amount of shares to be able to deliver when the option is exercised. This cycle has basically been repeating this week and last, and maybe the prior. Whoever has sold the call options has been having to buy more and more of the stock to cover their exposure. This is called a gamma squeeze, but I don't think is related to Melvin, and doesn't even necessarily cause losses to whoever has to do it theoretically, although it likely has because of the discontinuities in closing x open prices for GME. Although I wouldn't imagine losses in the magnitude of what the short sellers are seeing.
Short stock positions do not expire. You borrow the stock and sell it, if the position is going against you your broker (or in the case of a hedge fund its called a primer broker and the relationship is more complex than between retail investors and a broker) will want you to add cash to the collateral account so that they have something in case the position continues to go against you, and you lose more than you even had in the first place. As someone somewhere mentioned, when SAC and Citadel funded Melvin on Monday it was possibly just to cover the collateral that whoever Melvin's PB is was requiring (PB for them would likely be Morgan Stanley, Goldman Sachs, JP Morgan, or something similar).
In options if you have a negative view on a stock you can buy puts which give you the right to sell someone the stock at an agreed upon price (the strike) and that will work in your favor if the stock if below that price. If you have a positive view you can buy calls that give you the right to buy the stock at an agreed strike and that will work in your favor if the stock is above that price.
What seems to have Melvin in trouble is a short position, not options. Their 9/30/2020 13F position filing shows that they owned a number of Puts on GME, expressing their negative view. But the thing is that you can't have an infinite potential loss from owning options, be them puts. All that can happen is you pay for the puts and at worst they are worth 0, and you lose whatever you paid. You can have an infinite potential loss from selling calls, but we don't know that Melvin did that. That leaves that what was likely creating their ever multiplying losses was just a short position on the stock.
But options and their expiration do have to do with the crazy rally as well, and that's on the side of the Calls that the WSB crowds and others have been buying. Because there's so many expirations and strike prices for options, the likelihood that you'll fund someone that wants to take the exact opposite position to the one you're looking to sell/buy is low. So banks and others run market-making operations on the options. But the banks don't want to stay on the other way of your trades either. Good for them that Black and Scholes figured out a bunch of good stuff on how to value options and calculate equivalents in stock exposure, so they offset whatever the exposure generated by each trade is by buying or shorting the underlying stock as appropriate.
Where this adds to the squeeze is that if someone buys a call option on something but with a strike far far ahead of the current price, the model will generally tell you that you don't need to buy a lot of that stock to offset your exposure from selling that call (unless you input a very very high volatility in your calculation). But in the case here of a stock that's just skyrocketed, as the stock goes up you have to buy more and more to cover the potential exposure. At the point when the option is finally above its strike (in the money) and at expiration, you need to fill up and buy the entire underlying amount of shares to be able to deliver when the option is exercised. This cycle has basically been repeating this week and last, and maybe the prior. Whoever has sold the call options has been having to buy more and more of the stock to cover their exposure. This is called a gamma squeeze, but I don't think is related to Melvin, and doesn't even necessarily cause losses to whoever has to do it theoretically, although it likely has because of the discontinuities in closing x open prices for GME. Although I wouldn't imagine losses in the magnitude of what the short sellers are seeing.
No, you don't have to feel bad. But I don't what I ever did to you to be deserving of your scorn. However if it's the case then I'll be sure to despise you right back.
"Get rid of them yee-yee ass stocks and you might get some bitches on your dick."
I think professional stock traders are bad too, if you want to make a list for the purposes of mutual scorn.