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Gamestop was heavily shorted, which means people (firms & individuals) borrowed stock and resold it, assuming they could buy back at a lower price
Their short interest? 140%
So 140% of their total outstanding shares were borrowed then resold, this is HUGE
Their short interest? 140%
So 140% of their total outstanding shares were borrowed then resold, this is HUGE
If you're short & the stock goes up though, you quickly start to lose money. Depending on your risk, you might start buying back to limit your losses
With a stock like $GME at 140% short interest, the amount of people buying back to cover their shorts means a LOT had to BUY!!
With a stock like $GME at 140% short interest, the amount of people buying back to cover their shorts means a LOT had to BUY!!
At least some people on r/WSB knew that buying back in with a low float stock like $GME would mean a quick spike in the price as it went up
This has happened before with other 'short squeezes' and isn't completely uncommon (Elon Musk made this famous with TSLA)
This has happened before with other 'short squeezes' and isn't completely uncommon (Elon Musk made this famous with TSLA)
Now, most hedge funds with a short on GME would likely want to keep shorting it and not have to take a massive loss since it will likely 'return to real value' soon
BUT there is something called Reg T...
BUT there is something called Reg T...
Reg T is why people get 'margin called'.
It states that there is only so much risk an account can take on.
So even if you think GameStop is going back down in a month you may be FORCED to buy back your short because of the regulation
This has been true for a number of firms
It states that there is only so much risk an account can take on.
So even if you think GameStop is going back down in a month you may be FORCED to buy back your short because of the regulation
This has been true for a number of firms
Melvin capital got $2.72B from Citadel and Point72.
Nobody knows the details, but I'm guessing its to cover their Reg T requirements until the storm passes (once again, a guess)
Others aren't so lucky, and are likely being forced to close out their positions.
Nobody knows the details, but I'm guessing its to cover their Reg T requirements until the storm passes (once again, a guess)
Others aren't so lucky, and are likely being forced to close out their positions.
The SECOND driver of $GME is r/WallStreetBets' love of options.
Specifically YOLO call options, which are far out of the money, cheap, and mostly sold by algorithm traders (computers) that judge probability
This is where it gets worse for the short holders and math takes over
Specifically YOLO call options, which are far out of the money, cheap, and mostly sold by algorithm traders (computers) that judge probability
This is where it gets worse for the short holders and math takes over
YOLO call options on GME today could have been at $160, or 100% above todays low of $80. This gives the right to buy 100 shares at $160
Whenever calls are sold the institution selling them will often hold some shares to de-risk and as it gets closer, will buy more
Whenever calls are sold the institution selling them will often hold some shares to de-risk and as it gets closer, will buy more
Buying as it gets closer to calls just makes sense from a de-risking perspective (don't want to have the same problem as short sellers) and is driven by risk-averse trading algorithms
So since there is so much call volume and quickly upward stock, computers are buying to de-risk
So since there is so much call volume and quickly upward stock, computers are buying to de-risk
Math has basically taken over. With so many out of the money calls coming into the money, firms selling calls have to load up to cover their risk. It's not just short sellers
Bloomberg's expose on r/WSB made many of them aware of this fact
Bloomberg's expose on r/WSB made many of them aware of this fact
At this point, $GME has no real reflection on the actual value of GameStop. It's coming down to momentum, but more importantly, math, algorithms, and regulation
It isn't just retail driving an insane storm. It's the whole ecosystem that is built on semi-rational behavior that can't handle a high level of irrationality
Short sellers beware...
Short sellers beware...
