[whimsicalism]

I'm just not really sure I understand the narratives being thrown around right now, and I'd like to think I understand the economy somewhat

Melvin Capital closed out their short position yesterday with a large loss - and Citadel helped cover that loss.

As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price?

Citadel is probably making bank off of this actually, like a lot of other sell-side firms.

[beachwood23]

Yesterday, there was a 140% short position on Gamestop.

Today, there is still a 122% short position on Gamestop. There are still many funds hedged against GME. Melvin might have had one of the larger positions, but there are many more funds with this position. Source: https://finviz.com/quote.ashx?t=GME

As you say, they would make money by running the orders, regardless if GME goes up or down. So - why would they stop? It is most likely that Citadel is still exposed to other funds holding short positions in GME.

[whimsicalism]

> So - why would they stop?

There is literally no evidence that Citadel has stopped serving GME orders. That is entirely the conjecture of this thread and ignores the much more likelier option that it was Robinhood that limited the stocks.

Why wouldn't you short GME after the price has risen so high? I'm sure there are plenty of hedge funds shorting now at a much higher price.

Hell, I shorted AMC yesterday and have made quite a bit off of that already.

[matthewrobertso]

>Why wouldn't you short GME after the price has risen so high?

Because the stock is already over 100% short and an army of retail investors is purchasing it

[whimsicalism]

So? If you had shorted GME yesterday, you would make a bunch now that the price has collapsed.

[matthewrobertso]

What if the price goes up further? It's already rebounded 50% from the short ladder/blatant robinhood manipulation. Why put yourself on the hook for something during a black swan event?

[whimsicalism]

> Why put yourself on the hook for something during a black swan event?

Because that is also often when it is a good time to make money.

It's entirely unsurprising to me that short pressure on the stock would increase after this.

[silexia]

Lots of individual retail investors, including myself, take short positions on a regular basis. People keep saying that all the short positions are held by hedge funds, but in reality there's a lot of individual investors that have short positions too.

The risk to a company that processes trades is that many of these retail investors accounts would turn negative and the company that processes the trades would take giant losses they did not plan for. To prevent that, they stop processing trades.

[vvG94KbDUtRa]

retail investors are a very small minority of short positions. hedge funds do most of the shorting in the market

[tsdlts]

They didn't tell you how much of the position they closed out on. They can say "they closed their position" even if they only closed out on 1% of it.

[tartoran]

How likely is it for them to close their position when the price hit so high? That would be a huge loss. Why not wait a bit, make a few desperate phone calls and leverage their power before that?

[whimsicalism]

Because of the expiration date of the short they sold and uncertainty over whether the price would continue to increase.

If you have to buy by EOD Friday and the price starts skyrocketing Thursday, you might want to buy a little earlier even if it means eating a huge loss, because you don't know if that skyrocket will continue into the next day.

e: Why is that downvoted?

[desertrider12]

Shorts aren't options, they don't have expiration dates. You can hold a short indefinitely just by paying interest on the borrowed share value when you entered the position. You can even keep the short from being forcibly closed during a squeeze by providing more collateral.

Put options do expire, but the worst case for puts is that they expire worthless. Regular shorts can have unbounded losses.

https://www.investopedia.com/ask/answers/05/shortmarginrequi...

[Leherenn]

I have to admit I'm missing something in this story. If the shorts do not have to sell, what's the endgame for WSB? Is it just the margin requirements will be too high, thus forcing lots of them to close their position? I see lots of references to the short squeeze happening tomorrow, so there must be something that force people to settle their position tomorrow?

[notSupplied]

What happens when the party you borrowed the stock from, seeing the new high price, wants to sell it to cash in on the fever? Can they not force close the position if the price moved up by some threshold?

[whimsicalism]

Sorry I misspoke.

Melvin Capital's short position was in the form of puts, I think.

Since they would expire worthless, better to sell them when it is skyrocketing than to wait and see it skyrocket further and lose all of your money.

[harambae]

>Melvin Capital's short position was in the form of puts, I think.

This is incorrect.

[ROARosen]

The other commenter is right that shorts have unlimited risk, and put option are defined, but they can technically be short by selling calls which would make them expire-able.

But honestly I doubt it was even possible to be short so much with options alone on such a low cap company (as it was before this blew up)

[whimsicalism]

Is it wrong to call selling calls short selling? Regardless, I think it was puts that they were buying (so sorta the contrapositive).

[tartoran]

I don’t buy it. They’d try some tricks before capitulating. And look, it worked. Since RH stop allowing buys the price went down

[whimsicalism]

> They didn't tell you how much of the position they closed out on. They can say "they closed their position" even if they only closed out on 1% of it.

There is no ambiguity in what "closing the position" means. Stating on CNBC that you have closed the position when in fact you only bought shares to cover 1% of your short would put you in jail.

Your mental model for how the world works is wrong.

[stdgy]

Serious question: Has anyone ever been jailed for publicly saying they've closed a short position but not actually closing it all?

Is it equally illegal to say on CNBC that you closed it out, but to email your investors and tell them you didn't?

Is the legal issue that you're misleading your investors or that you're manipulating the market? Both?

[ziml77]

The thing the SEC is going to take issue with is lying to investors. Investors have a right to know what's going on with their money.

And despite how it seems from outside Wall Street, hedge funds are definitely scared of the SEC. Banks worry less because their money is sourced differently. Hedge funds have to worry about legal action not just for the fines but also for scaring their investors. When individual investors are so large it only takes a few redemptions to significantly impact AUM.

[Avalaxy]

The same way that tweeting "funding secured" puts you in jail?

[whimsicalism]

Musk didn't even make any profit from that (he didn't sell) and he still was fined $20 million and had to give up his Tesla board chair.

[TuringNYC]

Recall that when that was said, it was being said by an executive and director of a public company.

[djeiasbsbo]

If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure.

I am not trying to conspire, genuinely curious.

[whimsicalism]

> If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure.

Source?

Also potentially new shorters getting in? I shorted AMC yesterday and have made quite a bit today.

[__al__]

with the stock price through the roof other funds (and retail investors) see it as a good opportunity to short.

[tartoran]

> As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price?

If this is accurate then your question makes sense. Why? But how do we know this is real though? They could play games as well and I'm sure they do. Stock trading is gambling.

[whimsicalism]

Citadel securities does not "play games", they aren't YOLO-ing on a GME short. They are happy to model the market so they can hedge better than their competitors and make money off of the bid-ask spread.

Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.

[TuringNYC]

>> Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.

IANAL but I doubt this would be fraud -- they arent a public corporation making statements about themselves. They did have LPs, but i'm not sure what restrictions there are around speaking -- would anyone know?

[cmdli]

IANAL also, but I would imagine that they would need to represent themselves accurately to their investors at the very least. Perhaps they could be telling their investors something different privately?

[TuringNYC]

Yes, hedge funds send their LPs private "Investor Letters" with a lot more detail. Not sure who the public statement was meant for, but it might have been meant to discourage the public from taking opposing positions.

You wouldnt communicate to your LPs via CNBC or Twitter.

[cryptonym]

You may work on some fancy model but at the end of the day you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors.

Maybe, the problem was just transferred to someone else so they can remove it from their statements. And now that someone is trying to deal with this. Unless we have trustable source with all the details on how that position has been closed, I don't think it's safe to assume anything.

[whimsicalism]

> you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors.

Sure, there is some risk in liquidity provisioning, but I think you are really not understanding what market makers do and conflating it with hedge funds.

[npsimons]

> Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.

Two points:

  1. As I understood it, they closed *A* position, not their whole position, and announced that in the hopes it would deflate the stock price so Melvin doesn't crater.
  2. And what, exactly, would be the punishment for this fraud, assuming they even get prosecuted and convicted? Can you put a dollar figure on it? Now put a dollar figure on how much they would lose if they didn't make that announcement, and compare the two numbers.

[Red_Leaves_Flyy]

Iirc they only stated that they closed "a" position. Others have run with that in a horrid game of telephone.

[whimsicalism]

"Melvin Capital has repositioned our portfolio over the past few days. We have closed out our position in GME (GameStop)"

You recall incorrectly. I encourage you to Google before commenting your recollections, it's quite easy to find.

[exclusiv]

Which "spokesman" made that statement? Pretty easy to deny no?

"Melvin Capital has repositioned our portfolio over the past few days. We have closed out our position in GME (GameStop)," the spokesman said in a statement. [1]

[1] https://www.usnews.com/news/top-news/articles/2021-01-27/hed...

[llampx]

They have every incentive to lie

[Red_Leaves_Flyy]

Where's your source?

[whimsicalism]

Literally just google the sentence I posted, it's been reproduced on a number of reputable outlets.

[shrimpx]

Have they closed out their position? They said via CNBC that they have "closed a position", that's basically the quote that's making the rounds.

[baq]

remember they don't have to report if they opened another one.

[whimsicalism]

If they opened another one, it would be at the much higher price and thus fine.

[baq]

couple hours after sister company of their major stakeholder (as of monday) disables purchases of the same stock for retail.

this stinks.

[warkdarrior]

If SEC decides at some point that this was pump-and-dump scheme (even crowdsourced), the Citadel may become liable for enabling that scheme, even if they do not run it themselves.

[cameldrv]

It seems unlikely to me that Citadel would be liable. They're just processing bulk transactions -- they have no direct contact with customers. You could just as well blame the NYSE.

[ethbr0]

They were just processing bulk transactions.

If it's true they refused to process for certain securities for their downstream clients, then I believe "When?" and "Why?", specifically in relation to other actions, become legally relevant questions.

[whimsicalism]

I think it is much more likely that Robinhood is liable than the liquidity provider for Robinhood.

[alasdair_]

>Melvin Capital closed out their short position yesterday with a large loss

This is something many people are claiming is false. As far as I can find, Melvin have not issues any formal statement on the matter - this claim is purely based on a CNBC "source".