[wrkronmiller]

> On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. The firm moved to reduce risk in its investments following a turbulent start to January when it lost 30 percent in the first three weeks. Melvin’s leverage ratio is at the lowest it has been since the firm’s founding in 2014, said a source familiar with the firm. The news of Melvin’s January performance was first reported by The Wall Street Journal.

Which begs the questions: who are the remaining short-sellers and what do their positions look like? Are they other hedge funds with soon-to-expire positions or are they retail investors betting that GME will be back down to $100 or less by next month?

[Judgmentality]

The general assumption on WSB is that Melvin Capital is lying and that they haven't closed their positions.

I haven't seen any evidence to suggest they've closed it, and have seen circumstantial evidence suggesting they have not. You don't spend money on ads saying "we no longer have a financial stake in this stock" unless you, you know, have a financial stake in this stock.

Considering this is a hedge fund, I just assume they're lying because, you know, it's a fucking hedge fund.

EDIT: People are claiming CNBC bought ads, not Melvin Capital. https://i.redd.it/8vxraurkcce61.png

[nickysielicki]

The way that WSB has latched onto Melvin as their enemy is to their detriment. It was never about killing Melvin capital, or at least, it shouldn't have been. It ought to have been about the ridiculous short interest on the stock, regardless of who was funding it. Whether or not Melvin specifically has covered their shorts is irrelevant to how the short interest as a percentage of float has changed in the past week.

https://twitter.com/ihors3 is the source to pay attention to, and he's saying (within the past hour) that collectively, the shorts have been largely covered. It's going to be bloody tomorrow.

... Either that, or magical meme energy is going to defy reason once again. Who knows.

[mmahemoff]

They latched onto Citron first. They're focusing on punishing the "enemy" instead of an abstract trade idea. Motivates holding longer instead of jumping ship to cash out.

At this point though, many original buyers have probably sold some/all and most current holders are in it to make a quick buck, not to stick it to the suits. They'll be happy to jump off with a 2x or 3x return if they think the house of cards is about to collapse. Hedge funds sell first and retail traders left holding the bags, complaining the system's all rigged when they should never have entered in the first place. We don't know the exact timing, but we know it will be bloody at some point.

[freeflight]

> They're focusing on punishing the "enemy" instead of an abstract trade idea.

Afaik that's only a somewhat recent change in narrative.

One doesn't get that many people, and that much money, on-board solely on the idea of "Burn your money to punish an enemy that has much more money than you", you get them on-board by promising massive gains and how getting in on this will yield such great returns that people can buy houses and pay off debt.

Which was the original narrative that started all of this and is still the most peddled one.

There are a handful of people who are quite open about the fact that they are willing to burn money to hurt the hedge-funds, but those get mostly drowned out by the flood of comments along the lines of "Look at all the money we made!" pushing people to further buy in even when GME is at $200+ because "We go to the moon!" or some other memefied slogan.

[woah]

I think you’re wrong. Having an enemy always helps rally people to a cause. In the case of this GME saga, WSB’s juvenile hatred towards funds they perceive as their opponents actually ended up being their biggest rhetorical win. The media picked up the story of “Reddit vs hedge funds” and ran with it because it’s much more interesting than “amateur investors want to get rich quick”. That generated the huge public interest, and was helped by a large array of pundits and politicians(like AOC) who wanted to get their nose in the publicity trough when they saw the media feeding frenzy. If the message had only been about some Reddit get rich quick scheme, nobody would have cared, and it would not have gone far.

[loganfrederick]

If the stock continues going up this week, it's that the "magical meme" energy is actually the momentum traders and various celebrities who want to keep the story going by putting more money into it. Of course, they are then likely to flip their positions for a profit before they tell their followers they've sold, leaving the fans holding the bag. Just at a more extended timeframe than you'd predict.

[dorkwood]

The driving force behind the movement is a David and Goliath story. Take away Goliath, or turn the enemy into some abstract concept, and you weaken the story. I'm not sure it would have worked as well.

Organized pump and dumps aren't anything new, but this is the first I've seen that used a story with mass appeal to energize its base.

[jonnyone]

>defy reason once again.

Nothing I've read about this hints that reason was ever defied. If anything reason was used cunningly.

[samename]

How could they have covered their shorts on Friday with such low volume?

[qeternity]

Huge volumes trade off exchange in “upstairs” markets (blocks and dark pools). In a super volatile and absurdly illiquid at times market like GME recently, this is where the institutionals would do most of their trading.

If I needed to buy 1m shares of GME I wouldn’t do it in the open market. I would call my favorite sell side shop, let’s say Goldman and have them call Fidelity or similar to arrange a block trade.

[alextheparrot]

I think that post is representative of how only the market and time will actually flesh out this story. The GME holding party entrenches further because the graph is bad (Y Axis distortion) and the GME short party says the pressure has been alleviated.

[ajross]

> You don't spend money on ads saying "we no longer have a financial stake in this stock"

I don't think they did. The source of this meme seems to be a Twitter ad from CNBC that was teasing an interview with a quote to that effect. That's a CNBC ad selling their show, they don't take paid ads from their guests.

[easton]

This is not what happened, I don't know why people keep perpetuating it. The entire source of the "Melvin Capital has closed their positions" thing is an anchor on Squawk Box on Wednesday morning saying that he just got a call from Melvin's fund manager who said that Melvin closed. There hasn't been any other comment besides that one, which is why people think it may have been less than honest.

https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...

[fractionalhare]

The more compelling reason to believe they didn't lie about it is because we haven't heard they went bankrupt yet. We probably would have heard that it happened by now, and they certainly would have been bankrupt if they didn't get out of GME in the $100s.

[imtringued]

If you are already out you don't have to tell anyone. You simply have exited the market and stopped caring.

[jerry1979]

Also, it seems like "close my position" could mean anything. Does that phrase have any specific legal meaning? For example, if I own 1 share of GME, then that is my "position". If I buy another share of GME, then I have a new position: 2 shares of GME. I "closed" my first position, and opened a new one.

[Teever]

> they don't take paid ads from their guests.

How do you know this?

[ajross]

They sell journalism under the NBC brand. Is this a serious question? If CNBC was issuing paid advertisement like that it would be a much, much bigger story than a spike in a small cap retail stock.

[elif]

NBC has double the primetime product placement of it's next nearest competitor, fox.

https://ufdc.ufl.edu/UF00101603/00001

[ajross]

That's about fictional TV shows, not news.

[fractionalhare]

> Considering this is a hedge fund, I just assume they're lying because, you know, it's a fucking hedge fund.

If this is your prior for approaching evidence, you're always going to catch big finance lying. But not because you're actually calibrated on evidence. And you won't be able to distinguish between actual fraud and baseless conspiracy.

[kshacker]

Well this has been going around on the reddits today. See for yourself: https://www.youtube.com/watch?v=gMShFx5rThI

> Says Cramer: What's important when you're in that hedgefund mode, is to not do anything remotely truthful, because the truth is so against your view, so its important to CREATE A NEW TRUTH to develop a fiction...the great thing about the market is it has absolutely nothing to do with the actual stocks

[vmception]

quite a bit has changed since 2006, specifically in the financial reform bill of 2010 and the jobs act of 2012

not a lot, but a bit

circulating a clip from 2006 as your only insight into the hedge fund world just proves all the talking heads right about retail traders being a joke.

[protastus]

> quite a bit has changed since 2006, specifically in the financial reform bill of 2010 and the jobs act of 2012

> not a lot, but a bit

I don't know who you could persuade with such lack of conviction...

[vmception]

it was mainly to satisfy pedantic financial professionals passing by but I can see how that is not reconcilable for pedantic software engineers at the same time

[flunhat]

You should consider at least editing this post given that it has a massive inaccuracy in it, i.e. that Melvin Capital bought ads to communicate not having a position in GME. That was CNBC.

[drcross]

I'll double down for you and it will really melt you brain- they paid Ars in this article to say they have covered their shorts.

To think hedge funds wouldnt do such a thing when so much is riding on this, is extremely naive.

[fractionalhare]

With respect, you haven't thought this through. Given there is "so much riding on this", why do you think a hedge fund would concoct a nefarious, extremely uncertain scheme to get people to think they closed instead of actually closing?

You agree they're motivated by money, right? They would have lost literally all their money, even with the additional investment, if they were still in when GME soared to $400. They would also be aware of that fact.

[bluGill]

Because closing their position is not what any sane shorter wants to do. The bottom line of GameStop sucks baddly. Anyone who can add to their shorts stands to make a fortune in a few months after this all calms down.

Though they might have seen what was happening and exited at 50 to reenter at 300. That would be incredible foresight.

[qeternity]

Why do you think short squeezes happen? It’s not because shorts are being insane and covering. They are literally forced to. You have buying for reasons that aren’t commercial and that’s why short squeezes are so bloody.

[drcross]

>why do you think a hedge fund would concoct a nefarious, extremely uncertain scheme to get people to think they closed instead of actually closing?

Because they haven't closed their positions, and that information would tip shareholders into thinking they might release some profit before the price levels out.

>They would have lost literally all their money, even with the additional investment, if they were still in when GME soared to $400

No. Not if their positions haven't closed.

If you really think this through, why would they actually announce they have covered the shorts instead of simply reclaiming a short position?

[flunhat]

> If you really think this through, why would they actually announce they have covered the shorts instead of simply reclaiming a short position?

This is paper thin logic. If they hadn’t said anything publicly, you and others would be commenting, “See! Melvin Capital hasn’t said anything, so they’re still shorting GME.” It is incredibly common for investors involved in public battles over a stock to announce they’ve closed a position, see Bill Ackman and Herbalife (https://www.investopedia.com/news/billionaire-bill-ackman-du...)

[aardvarkr]

I mean, the obvious play is to short the stock now. Advertising that they're out helps cool the temperature of the storm so they're hoping to capture some value on the way down is my guess.

[londons_explore]

> The general assumption on WSB is that Melvin Capital is lying

If a company issues a commercial press release that turns out to be a deliberate lie, doesn't that usually result in prison time for someone?

Were there ambiguities in the statement?

[AtheistOfFail]

Fines... Which won't matter if the company's bankrupt

[pb7]

Can you link to this press release?

[Swannie]

If you've watched the big short, you'll understand that the challenge with a short is the timing. You have to get the timing right.

For Melvin Capital, they were right, until they were not - when WSB showed up. They have eaten a loss on this.

But that doesn't mean to say that someone else was not willing to buy their shorts, for a hefty discount, with a significantly longer term time frame strategy (because they don't have to borrow on margin), believing that once it becomes clear that Melvin are out, that Redditors will want out of GME, and GME will likely crash back to something close to its prior levels.

[m3kw9]

Given they lost 53 percent that does indicate the direction they closed a lot of it.

[kshacker]

I am more interested to know if they closed a lot the day many brokers blocked buying shares? ... so all the buys could have gone to Melvin at a price under 200 rather than over 300.

[m3kw9]

You would be sure they would try to close as much as they need during that big dip

[twistedpair]

Short interest numbers are published on the 15th and 31st of the month. We'll get a look to day on how the shorts have changed over the last 2 weeks.

[newacct583]

The stock is currently around $300, up by a factor of five from last week and much more than that over its historical base. The question should be who isn't shorting GME, not leading questions about a conspiracy theory as to whether or not Melvin actually closed its shorts or not.

I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

[elihu]

I'm not an expert, but my understanding is that this isn't like a tug-of-war where if there are more people betting short than long then the shorts win. It's asymmetrical. There are a finite number of shares and if enough people are willing to hold them at a certain price, then that will be its price. Someone with infinite money can't force the price to drop. (At least not through normal "market" means that don't involve fraud, theft, coercion, changing the rules, or violence.)

Imagine there's an auction for a one-of-a-kind Stradivarius violin, and it's bid up to a million dollars. Maybe you're a violin expert and know that it's only worth a hundred thousand dollars. But if at least two people are willing to bid it up to a million dollars, then there isn't a bidding strategy to cause the violin to sell for less than a million dollars.

Theoretically you could maybe claim to own an identical violin and be willing to sell it for two hundred thousand dollars, but if you don't actually have one it's a lie, and if people take you up on the offer but the price doesn't go down, you're on the hook for it. Which means you'll have to buy the violin at whatever price the person who wins the auction thinks it's worth, or default on your commitment.

[newacct583]

That's actually not how it works. "Holding" a share doesn't, by definition, do anything to its price. The price is determined by trades. That's what a trade is. You can be sitting on 99% of a company, but as long as that 1% of shares is active in a market it will determine what gets reported as the share price.

And yes, someone with infinite resources can absolutely push a share price down. Borrow every share you can and sell it at $1, for example. Obviously no one does this because it's a terrible investment decision, but it's certainly possible.

[elihu]

I suppose that's true, but kind of beside the point. The "official" price isn't really the price if any random person can't actually buy shares at that price. (Kind of like the Raspberry pi zero that can buy for $10 or so but you can't actually buy in volume at that price.) And supposing that you're sitting on 101% of the stock and people are still buying and selling, then what in the world is going on?

(I don't know if that's really what's happening with Gamestop.)

Anyways, even if the price is artificially low because of some artificial trades driving it down, that doesn't really matter in the sense of the shorts being able to unwind their positions. If the people who hold most of the stock aren't willing to sell for less than a certain amount, then that's what the shorts will have to pay if there aren't any other available shares. That requires the people with the stock to hold out for a good price (even if some infinitely wealthy person is borrowing real or imaginary shares and selling them for $1), but if they do they "win". At least, that's my (possibly inaccurate) understanding of the situation.

One aspect of this whole thing I don't understand is what happens in a "failure to deliver" situation? If the shorts just can't or don't want to pay the market price for a share, what's the penalty? Do they get sued? Declare bankruptcy? Is the exchange or brokerage liable for their debts?

[newacct583]

> If the people who hold most of the stock aren't willing to sell for less than a certain amount, then that's what the shorts will have to pay

But that presupposes not that WSB was big enough to trigger a short squeeze (something that everyone accepts), but that they are big enough to hold the bulk of the capitalization of (at this moment) a $18B company. Needless to say they aren't remotely that big. This isn't happening.

[elihu]

Sure, there's more going on than just some WSB people holding stock. Probably a lot of other people have gotten onto the bandwagon, and maybe even some hedge funds or bored billionaires. And some of the high prices lately may have more to do with short sellers covering their positions than retail investors buying at those prices.

At the same time, it's worth noting that a lot of the WSB people got in early, and were able to buy a lot more shares at a lower price. That WSB could scrape together 1.8 billion when the stock was worth one tenth what it is now is still a bit far-fetched, but closer to the realm of possibility than 18 billion.

[MichaelApproved]

If you can find shares to borrow, are willing to pay the 30% fee, and can handle the swings of a spike higher, go for it.

What will last longer, your solvency or the market’s irrationality?

[gruez]

>[...] are willing to pay the 30% fee [...]

that's per year. If it goes down 30% half a year from now you'll still be ahead.

[fairity]

You can avoid the borrowing fee and margin call risk by purchasing PUT options. The $320 PUT expiring in 1 year costs $240. I purchased 2 contracts on Wednesday bc I don't see a scenario where the price doesn't crash back down below $60 within a year. Expected ROI of 10-20%. Not a large return, but also a pretty safe bet imo considering their ATH prior to this squeeze was $60, and that was back in 2007.

[takklz]

The put options im seeing for 1 year out at $320 currently cost $24,000. (1 contract at 100 shares) what are you looking at that I am not? Am I looking at the wrong thing?

Edit: (sorry I’m not an expert in options)

[fairity]

Sounds like you're looking at the right contract. Option contracts are written to give the buyer the right to buy/sell 100 shares. So, the minimum investment for the $320 PUT is ~$24K. Contracts with lower exercise prices will be less expensive, but carry more downside risk.

[galimaufry]

Options prices are usually quoted per share even though you buy them in increments of 100 shares. So GP paid $25,000 per contract.

[shmoogy]

Won't IV collapse from the ludicrous 800% killing any gains? Better to sell cash secured put to gain the premium then sell the underlying maybe?

[fairity]

No idea how time value will trend, but I’m comfortable holding these contracts til expiration at which point I think the price will be sub 60. Could definitely be wrong - I just don’t see how! Investing isn’t my profession.

[icedchai]

It seems less risky to buy puts, not short directly. I wouldn’t want to be short if this goes up another 10x, even briefly. It will go back down but you might get wiped out first.

[bluGill]

The problem with puts is they can expire before this calms down. If you can get a short in and not get a margin call this is the opportunity of a lifetime. Only the biggest players dare risk it though.

[icedchai]

This is true, but you can also go broke if you mess up your entry point. What if it happens to triple before it falls back down? Will you have the ability to sustain those losses, psychologically and financially?

I knew a guy that wound up going short on a stock that was going to the moon. He was down almost a years salary at one point. I'd rather go with a longer-term put option to keep the risk under control. It just lets me sleep at night. Everyone is different.

[bluGill]

As I said, only the biggest players dare risk a short at this point. I'm not sure even the likes of Bill Gates are big enough, but there are many institutions that are bigger than him.

[fairity]

There are long-dated puts that expire 1-3 years from now. In what world would this not calm down before then?

[coffeecat]

Not exactly a 1-3 year timescale, but Elon Musk tweeted something about Signal earlier this month, causing SIGL (completely unrelated to the messaging service to which he was referring) to spike from ~$0.50 to $40 per share. Three weeks later, and SIGL seems to have settled down at around $5 per share - 10x the original price. In other words, the price after the shock is not correlated with the price prior to the shock.

[bluGill]

https://en.wikipedia.org/wiki/Tulip_mania speculators enter in 1634, the bust wasn't until 1637, and the bubble had been growing well before then.

I have no idea where we are in this bubble. The timeline will only be known a few years after it pops. There may be false pops on the way up.

[supernovae]

TSLA

[Tenoke]

Shorts aren't free. Even if you know a stock will eventually drop, benefiting from that is not quite so simple.

[whateveracct]

even in an obviously stupid situation like GME, timing the market is still timing the market.

[imtringued]

>I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

That's extremely foolish because it will only make the long position safer and safer.

[Moodles]

A better question is: If Melvin made a huge short position and is now finally out of it, why would they bother telling everyone? ;-)

[saurik]

Maybe so investors can evaluate the current status of their hedge fund without thinking there is some massive looming instability about to hit them?

[Moodles]

Or, maybe they're lying to discourage more calls? In any case, their best strategy is to claim they're out of the short position so really them saying so is useless information.

[fractionalhare]

What's not useless information is that they simply didn't have the AUM to survive GME going from $100 to $300. They either got out when they said they did, or they're gone.

[tzs]

> Or, maybe they're lying to discourage more calls?

Is this something they are legally allowed to lie about?

If it is not, is this the sort of thing they can lie about anyway because unless an insider blabs no one would know, or is it one of those things that someone would be able to figure out from required SEC filing or other public records?

[infinite8s]

Shorts are not required to be disclosed on their 13-F filings (which they must file quarterly to report long positions).

[gonzo41]

I know it's not illegal, but how is being that big and lying, not market manipulation?

[intrasight]

What is market manipulation? Apparently, anything not covered by the VAR models of the big banks.

[MichaelApproved]

So investors in Melvin won’t abandon them. They want to reassure their own investors that the damage is done and they’re out.

[joekrill]

In that case they could most definitely inform their investors directly and there's absolutely no need to make a public statement about it.

[flunhat]

They could, but it's common (and not suspicious) for an investor involved in a public fracas to publicly reveal they've exited their position. Bill Ackman did something similar with Herbalife: https://www.investopedia.com/news/billionaire-bill-ackman-du...

[Aunche]

My theory is that Melvin sold their short positions to other hedge funds that have enough liquidity to weather the memestorm. Melvin itself is likely just trying to keep their other assets, so they can't afford the shorts. Now that the stock is obviously overvalued, the borrowing fee for GME is insanely high. Buying the shorts from Melvin would be an arbitrage opportunity.

[superzamp]

As many have noticed, from a game theory point of view, Melvin announcing they closed their position is a strictly dominant strategy.

[Tenoke]

Likely just new shorts from a variety of places. I've seen plenty of people opening shorts with the expectations that WSB's play will blow in their face eventually.

[oraphalous]

Yeah - I mean, why wouldn't it attract a bunch more shorts that open their positions at the current highs?

Wouldn't surprise me if Melvin hasn't really closed their position - but it wouldn't be irrational to think that /r/wallstreetbets will at SOME point in the future move on from gamestop to something else.

[hn_throwaway_99]

> why wouldn't it attract a bunch more shorts that open their positions at the current highs?

The cost to borrow shares for GME is currently astronomical, last I saw was like 50%

[gruez]

...APY, which isn't that bad if you think this meme will blow over in a few weeks.

[imtringued]

The problem is that hedgefunds call retail traders stupid and if they are really that stupid then they will hold the bags, which is exactly what the shorts don't want.

[tedunangst]

Have you looked at open interest for puts? How do you think that's hedged?

[hntrader]

How up-to-date is that short interest data?