[ignoramous]

> While everyone is celebrating retail traders winning over a large hedge fund in this case, it rarely ever plays out this way. Most commonly, retail ends up losing money when there is excessive speculation.

This is the only passage anyone with too much at stake (than they can afford) in this short needs to read.

Other than that, I believe industry insiders / traders are missing the mark in that the current dynamic is also fueled in part by a million-strong (if not more?) rejecting the fundamentals and pumping cash in to businesses that Wall Street's hive mind has decided has no job being in existence.

AMC made a billion dollars during the rally [0] (and it is not lost on me that this capital would be dumped into parachute payments and bonuses to c-suite and nothing's going to trickle-down). In the off-chance AMC makes the capital work, then, that'd have vindicated retail, but it kind of seems too optimistic but that's the whole point.

[0] https://movieweb.com/amc-theatres-raises-one-billion-dollars...

[lovich]

>rejecting the fundamentals

I think what is missing in many people's analysis is that there is a new fundamental value in this situation. Buying GME shares is now linked to destroying a hedge fund and ruining some billionaire's days. For many people, and I include myself in this group, that has a real tangible value that outweighs the actual dollar amount it costs to buy a few GME shares.

When the leaders of these brokerages and hedge funds ponder as to why people are throwing money at something that is likely to crash and burn when it will likely not make money and is just hurting the billionaires, they are staring the answer in the face

[xadhominemx]

Buying GME is in fact not linked to destroying a hedge fund as the funds with large concentrated short positions exited the investment several days ago. The situation now is a bonanza for billionaires, as many have gone long the stock or are providing highly lucrative retail options market making services. The entire narrative about gme now being some sort of populist uprising is a sham perpetuated by those who want to bring fresh bag holders into the name.

[TeMPOraL]

The loudest opinion on WSB currently is that the hedge funds didn't actually exit their shorts, but are lying about this, and, well, quoting from a random WSB post:

"They didn’t exit any of their short positions! You can look it up!!! The fund sold their shares to other funds, which made the stock algorithm think the stock is being sold —> price goes down —> the found that bought sells those shares again to the fund that sold them in the first place —> price drops even more —> they keep doing that —> price drops lower every time —> but as long as we hold they weren’t able to exit any positions!!! Shorts are still up 120% percent. As long as we hold the squeeze is inevitable!! And if you don’t believe me, look at the GME after hour stock price!"

https://old.reddit.com/r/wallstreetbets/comments/l7oobr/4206...

Whether that's true or are they just driving themselves off a cliff? I don't know.

[hollowcelery]

> Shorts are still up 120% percent

This doesn't mean that the original funds didn't exit the positions. It's likely that there are many new participants who are taking short positions in the last few days because the stock is obviously overvalued.

[grey-area]

I suspect many of these posters are not driving themself off a cliff, but others.

They’ll keep pumping while they have an incentive to do so, and the gullible will follow after, but many of the original ‘hold’ advocates must be planning to exit before the inevitable end, leaving the bag in the hands of a greater fool.

[threedots]

I don't understand why people think Melvin would do this. Sure they might be prepared to flout SEC rules if they thought they could get away with it but whether they sold is trivially verifiable and they would be guaranteed to get caught. Exiting the position was probably also a precondition of the new investors putting money in.

The comment you pasted is incoherent rambling. It's honestly like something from a qanon forum. Even ignoring that prices don't work how they seem to think the mechanism they suggest for manipulating them doesn't make sense (it would also be very illegal and again trivial to verify for the SEC).

[TeMPOraL]

> The comment you pasted is incoherent rambling.

That's most of WSB, though (after you exclude all the "+1" comments). I agree it's incoherent rambling, that's why gave up on trying to paraphrase it. I'm quoting it because this is the kind of stuff that gets reposted in every single thread there, and is indicative of the general atmosphere there.

[lovich]

It’s not trivially verifiable for the average person and the average person is used to the rich just flaunting the law with trivial or no consequences.

Saying “but that would be against the rules!” means almost nothing for the rich. This is one of the downsides of not having a strong rule of law and the rule of law has been degrading steadily in the US

[threedots]

It's trivial for the SEC

I don't know if you're implying the SEC is in cahoots with the hedge funds, and not just any hedge fund but one associated with SAC/Cohen whom the SEC went to war with. I'm sympathetic to your general point but as someone who has spent his whole career in the financial markets that seems vanishingly unlikely to be the case here.

[xadhominemx]

I’m sure some funds are still short GME but with small position sizes so they can absorb temporary losses. No way any large fund still has a concentrated short.

[dualthro]

How come I continue to see posts talking about the short float for GME being in excess of 100%?

disclosure: I have no investment in GME, but am hoping to see some hedge funds suffer

[xadhominemx]

It probably is over 100%. That’s unusually high but 100% short interest is not some sort of special number. Shorting works by borrowing a share and selling it to someone else. There’s no reason the same share could not be borrowed multiple times, as the shares are all fungible.

[tonyarkles]

From what I understand, it is a slightly special number. Each one of those shorts is supposed to have some kind of contract in place that can be used to cover the position (e.g. a call option that would ensure that the stock could be purchased, even if the options contract isn't ITM). If there's over 100% short interest, then it's impossible for all of the outstanding shorts to be covered in that way (or, alternatively, the contracts to cover the short positions are naked, not the shorts themselves).

I'm by no means a finance guy and if I've misunderstood this, I'm happy to be corrected.

[TeMPOraL]

(Disclaimer: my expertise on the stock market extends to knowing how to spell "stonks".)

I posted a chain analogy elsewhere[0]. My understanding is that short interest being > 100% just means that the average length of the "short-lend" chain is greater than 1 "short-lend" pair. I don't think that such a chain is anything special - just that getting rid of the earlier short in the chain requires getting rid of the latter short in the chain first.

--

[0] - https://news.ycombinator.com/item?id=25956325

[bluGill]

That doesn't matter because nobody covers the stock at the same time. The shorts buy back a few stocks, return it, then a bit later buy it back again from someone else who sees the higher price and decides to cash out. Neither of the two owners above knows that that they both technically owned the exact same stock.

Most stocks are head by the broker who combines them all into one listing of total number of stocks owned. This is all electronic, nobody ever worries about the actual stock behind it. When the company sends out a shareholder mailing they just give the company all the addresses, not how many shares anyone has. (I'm not sure how voting is handled!)

Note that there is a loophole above. It is possible to get the physical stocks personally instead of letting your broker handle it. This can force a short squeeze as your broker will be forced to unwind everything far enough to find real shares for you, and if required will force one of the shorts to buy back shares on the market. This has happened a few times in history, but few people have the means or inclination to pull it off (and it isn't what is happening here).

[kybernetikos]

Sure, but when you short, you owe a share. If more people owe shares than there are shares for sale, you have a serious supply and demand problem depending on when those debts come due. If shorts are significantly over 100% of float, then it would seem that they are still vulnerable to further squeezing.

Further shorting is completely possible - nothing stops shares continuing to be lent, but doing so just makes the likely supply shortfall worse.

[threedots]

The supply of shares for covering is not constrained by the number of actual shares in issue in the ordinary course of trading (you can create this condition artificially if you want to but people usually don't). There can always be more shares created for short sellers to cover with through shorting itself.

Short squeezes are usually not about supply constraints, they are about forced buying caused by margin requirements. High short interest just indicates a lot of potential forced buyers in the event of a price spike. Except in special cases there is particular magic to having 100% of the float on loan except that this is a high number which suggests many potential forced buyers under the right circumstances.

[midasuni]

So if two people owned one share, they could simply pass it between each other until their shorts are covered?

[treis]

Not exactly, but yes. A single share can theoretically unwind all of these short positions. If we have

A lends to B who sells to C who lends to D who sells to E who lends to F who sells to G.

The reverse of the process will unwind it:

G sells to F who returns to E who sells to D who returns to C who sells to B who returns to A

[ScoutOrgo]

Not passed, but bought since the underlying price will have changed.

[sneeze-slayer]

Matt Levine gave a pretty good explanation a few days ago how short interest can be greater than 100% of float in his newsletter Money Stuff: https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...

[WJW]

While some billionaires are having a terrible week, market makers and prop trading desks have been making an absolute fortune. I'm sure the billionaires owning the market makers are more than happy to sell "financial uprising points" to WSB readers if they so desperately wish to purchase them.

It's a mistake to see "the billionaires" or "Wall Street" as a single homogenous group. 99% of them don't mind Melvin capital going under at all.

[HexDecOctBin]

In the modern world, most people live in a state of learned helplessness, because they have been told that the societal systems around them are very complex and they don't have a hope of comprehending them.

An event like this, while not being a be-all-and-end-all, can give commoners a taste of blood -- that maybe they are just as smart as those elites, that maybe they can use the systems for their own benefit too, that maybe they don't HAVE to live under the boot.

It's the hope that matters, because there are always more opportunities.

[leprechaun1066]

99% of them are doing more than just not minding Melvin's issues, they're actively feeding off Melvin. Melvin is going to be (or is already) selling off what they have in stuff like FB, MSFT, AAPL, etc, and it's not the retail traders who are benefiting from this, it's the other parts of the investment banking system. Even the sales traders are going to be on the phone with Melvin going "Sell 200k AAPL? No bother."

[simonh]

So what you're saying is you and thousands like you don't mind risking losing money because you think it's worth it to stick it to the man.

Who do you think is making money off all the trades you're losing on? Doh!

Some billionaires will lose money - actually they already did a few days ago when they exited. Some others will make a few millions or billions. Robinhood looks like they've got some explaining to do. Just another day on Wall Street.

[lovich]

That might be a compelling argument if they weren’t making money off of us in the first place.

When the choice is status quo vs actually hurting some of them even if the rest get the status quote, it’s an easy choice.

>Just another day on Wall Street

If this was true then none of the current events this thread is discussing would be occurring. You don’t need to destroy all of your enemies, you just need to prove you’re a credible threat to make the rest be wary

[simonh]

I don't understand what harm you think Wall Street is doing to you. In fact if you have a pension plan, you're profiting off the system too. As is your employer if you work for a listed company. Oh well, I suppose it takes all sorts.

[batmenace]

Destroying a hedge fund is also not a 'fundamental value', no matter how satisfying it might sound. Also, as I've said before, often the largest investors in hedge funds are pension funds or similar pooled vehicles, so screwing an investment fund like this doesn't always just stick it to the rich guys...

[chii]

You can redefine it, or give it a different name other than "fundamental value", but the point is that these buyers from wsb may be paying to play the game, not for financial profit, but for the lolz. Like house-odds gambling (which, has negative "fundamental value"), people still do it.

Now, as for whether there are enough of these crazy types to actually push the price of GME up this much - i'm skeptical. I suspect that it's a battle between different hedge funds who first caught on to this small group of crazies on wsb, and saw an opportunity.

[tylermauthe]

Of course the rich guys will use human shields to protect themselves as you are indicating. They will demonize this action as the work of jokers who just want to see the world burn. If your pension fund was relying on short selling, you had a terrible pension fund! The only place where blame should lie for any outcomes of this is squarely in the lap of luxury. Any average investors who were burned by this should be pointing their fingers at the hands that promised to feed them and have repeatedly failed to do so.

[rtx]

To further your point, things like these trigger a domino effect that ultimately hurt ones at the bottom.

[mavelikara]

Trouble is, the ones at the bottom already feel that they are hurt so much and won't mind a new round of hurt.

That probably is not a verifiable truth, but the fact that this impression prevails for enough people to do this is probably where the real corrective actions should be directed at.

[WJW]

Eventually, either the Wall Street "hive mind" (really though, WS contains thousands of funds and many would be overjoyed to see some competitors fall) or the retail buyers of these companies will be proven wrong. What happens next is way more interesting than the current situation.

Even if it turns out that GME can be short squeezed until there is not a single share shorted anymore, the retail investors will then collectively be HODLing a ton of stock in a company losing hundreds of millions per year. Buying pressure for such stocks is typically low. There is no way everyone can get out at the top, so a lot of people will have to sell at very low prices. This is even true if the original thesis of "we can pump this stock to $1000" is true.

[PeterisP]

"There is no way everyone can get out at the top" - this is the big issue here - as far as I understand, the position of WallStreetBets is that there are (were?) so many shorts of GME compared to the shares on market that they would be required to buy all that stock and everyone can get out at the top. I don't feel certain about this (especially since if any of the funds actually go bankrupt, they would default on their obligations, not actually buy the shorted stock at all and just owe some not-fully-collectable money), but that seems to be the whole reason for this situation.

[ZephyrBlu]

I'm pretty sure a mass buying of the stock would drive the price right into the floor.

So the first few people will get an extremely high price because like you said, the shorts are forced to buy, but as the sell off begins the price will plummet.

[tikej]

But aren’t the shorts for like 140% of the GME stock? That means if everyone holds with prices, sooner or later the shorters will have to buy ALL that stock anyway at nearly any price to cover for the losses and give back shorted stock.

[foolmeonce]

No one actually wants the underlying stock, so it is really just a bet on the value at the moment they theoretically need to hand over the stock between the parties in the contract.

I think the parties would just be exchanging money in lieu of stock and whoever bought the actual stock will have Gamestop stock, so after the utility for screwing the naked shorts goes away, people who bought in the rush will probably lose just like any other pyramid scheme.

[chii]

> I think the parties would just be exchanging money in lieu of stock

but stocks are marked to market - the lender of the stock will ask back the market value, which if it was being pumped, is going to be high. If the shorts are settled by cash, it's not only not going to make a difference to the bottom line of those shorting, it will also not change the price of the stock.

[treis]

No, because the shorts aren't due all at the same time. Say that 15% is due each day for the next 10 days. On day 1 those shorters will buy 15% of the stock and return it. The people they return it to then can sell it to the shorters that need to cover on day 2. Those people then return it and it's sold to the day 3 shorters and so on.

[bluGill]

Shorts are rarely due at all. If those who hold the shorts have enough capital then they can just hold until the market loses interest, and then cover their shorts at $2. Or better yet, even with a sky high stock price gamestop could be forced to declare bankruptcy by their creditors. If I had shorts on gamestop I'd be looking to get all the companies bonds I could so that when the bankruptcy goes to court I can say I want the company shut down and the judge listens to me. The company could be trading at $1000/share and suddenly the judge orders it to stop trading and suddenly there is zero value in any shares.

If you want to be a conspiracy theorist, the smart thing for the insiders (those who control the board) to do would be to sell all their shares at this price, then declare bankruptcy. This would be illegal of courses, but there are lots of variations on this theme that make financial sense if you can get away with it.

[WJW]

There is a more likely alternative than paying "nearly any price", which is that the funds in question go bankrupt and default on any obligations remaining. At that point, anyone who hasn't sold yet will be left holding (call options on) stock worth maybe a tenth of its current price.

[pbronez]

If the structurally possible outcomes are:

1) Shorts all come due and hedge funds pay all the retail investors big gains

2) hedge fund dies and defaults so retail get screwed

I’m pretty sure WSB would collectively declare victory. It’s a suicide mission for them.

[lepton]

140% of stock /issuance/, not outstanding. Shorting stock creates new stock. Once all shorts are closed, the 100% of issuance is still outstanding and someone's holding it. Not everyone can get out!

[bluGill]

That doesn't mean the same people. Gamestop does have a long term plan. If it works out the company can be worth money. Buying Gamestop for $2 at the bottom in a few months might be a reasonable risk for the final person holding the bag.

[HappySweeney]

> I'm pretty sure a mass buying of the stock would drive the price right into the floor.

Could you explain this? Doesn't increased demand drive the price upwards?

[lotsofpulp]

Increased demand relative to increased supply drives price upwards. If the supply curve shifts more than the demand curve, the price goes lower.

For a retail business that earns single digit profit margins with no moat, no employed talent, and no real assets, I can only assume once the supply curve starts moving, it will move fast as everyone tries to exit.

[ZephyrBlu]

> There is no way everyone can get out at the top, so a lot of people will have to sell at very low prices. This is even true if the original thesis of "we can pump this stock to $1000" is true

This is what I've been thinking about the whole time. They can definitely pump the stock if they keep HODLing, since sellers effectively set the price when the short positions have to be closed.

Someone still has to be the bagholder and end up holding near worthless stock at the end of this though.

$GME will come crashing down once the short squeeze is over, and there's only going to be a small minority of retail traders who get out at the top.

People who have bought in later at hundreds of dollars are likely to lose a lot of money IMO. Possibly to the tune of over half their initial investment.

[CaptArmchair]

Well, I opened up Reddit an hour ago. It's not just WSB, there's posts all over the place with tens of thousands of upvotes.

The thing that boggled my mind was plenty of people openly asking "Hey, I don't know anything about trading, but I want to join this and buy stock." and other people straight up telling them "Get the app from a broker (not RH!), open an account and buy $GME" (followed by a flurry of rocket and diamond hand emojis)

It is one thing to be told that markets can be irrational and emotional. It's a completely different thing to see it that playing out in real time on social media.

[R0b0t1]

>Someone still has to be the bagholder and end up holding near worthless stock at the end of this though.

The hedgefunds are filling this niche. Trading slowed yesterday because brokers were afraid of going bankrupt.

[ZephyrBlu]

That was because of liquidity issues.

There's no guarantee hedge funds will be the ones who end up holding stock at the end of this.

[dmingod666]

lol, when did the stock market reflect the fundamentals? Its post 2020, the whole economy had come to a standstill and the market was rallying like nothing happened. All this 'fundamentals' talk just sounds hollow.

[fock]

it is. the whole market is overvalued. But while some parts of the market have some actual things, people want (highly educated workforce, machinery, land, supply chains...) Gamestop has nothing of this and yet is pushed to an even higher value.

[Enginerrrd]

Yeah, tell me the P/E ratios everywhere else in the market right now are rational from a fundamentals perspective and I'll call you either deluded or a liar.

[medium_burrito]

By "fundamentals", you mean the government buying corporate bonds and money printer go "brrrr"? Seriously, we Japan now.

[bluGill]

Over any 20 year period the market has always reflected the fundamentals. However over any few months period it has always been a popularity contest.

Note that fundamentals include things like bonds and government manipulation.

[xadhominemx]

The market rallied because it accurately predicted there would be a strong economic recovery in 2021/2022.

[dwater]

That is not true, it hasn't accurately predicted anything. 96% of 2021 and 2022 haven't happened yet.

[chii]

That's why it's called a prediction, and not a record.

The market prediction doesn't mean it's going to happen - but it's likely. If the market prediction turns out to be wrong, then there'd be a correction in price (aka, another crash).

[dwater]

Sure, and in order to determine if a prediction is correct or incorrect, you have to wait for the event to occur. To make the above statement true you would have to either remove the word "accurately" or wait until the end of 2022.

[ece]

A good hedge fund knows how to hedge the risky investments they make, and if they're just betting, they should know someone else might get the other side. It could be another fund/investor, but it's WSB this time.

I think there's a lesson here for people making massive short bets, and for hedge funds and anybody making a bet instead of an investment: that someone else might take the other side and have more power than you might think. This is all just betting at this point, with WSB still betting they can trigger even more of a short squeeze. If this has somehow crossed the line from "bet" to "investment" that starts affecting the rest of the economy, then the consequences should be interesting to watch. Trading on exchanges shouldn't be able to be restricted by someone like Robinhood, though they have other problems too.