Basically, yeah. From what i understand, someone on the boards said the stock was a good value based on their analysis and noting that the big short interest meant that if the price rose enough, the short sellers would get squeezed and lose a bunch of money, which would accrue to the buyers.
Short sellers borrow stock and sell it today with the obligation to return the stock back at some point in the future. The short sellers borrow the shares from their broker, who charges them interest on the stock and who monitors the entire portfolio to make sure that the value of the portfolio is always high enough to pay back the short seller’s loans. Short sellers hope that the stock price will drop so while they sold high today, they can buy low in the future to pay back the stock they borrowed. The difference in the prices is the profit But short sellers lose money when the price rises. If they lose enough money, the value of their whole portfolio will drop. If it drops enough, the broker will look at the balance in the portfolio and say, “gee, if this short position loses more money, there won’t be enough money in the account to pay back the loans.” The broker’s solution is to force the short seller’s account to buy the stock in the market. This buying closes out the short seller’s position and reduces the broker’s risk but it locks in the short seller’s losses. Worse yet, the broker buying the stock is pushing the price up further, exacerbating the short seller’s losses. This is the “short squeeze,” – short sellers being forced to buy stock when the stock price is rising even though they want to do the exact opposite.
Some probably are but perhaps not in sufficient volume to offset the buying by the teeming masses of message board readers who are buying. I’m not looking at the GameStop executives specifically but often, executives’ interest in the company are in the form of stock options which have not yet vested. There are many executives who might like to cash out now but don’t have any saleable options. Some may not want to be accused of insider trading, even if they aren’t actually trading on the basis of insider information. Insiders selling stock is also viewed as a no-confidence vote, so many will avoid it if they want to keep their jobs. Other executives may be selling their stock according to predefined plans (called 10b5-1 plans, after Exchange Act Rule 10b5-1) under which they agree to sell a set amount of stock according to a set schedule for a period of time. These plans are a safe harbor from accusations of insider trading but they can’t vary their sales under those plans in response to current market conditions.
For the big guys, that’s how short selling works. Generally, the tilt in market information is people who want you to buy stock saying nice things about it, corporate insiders saying nice things about their employer, and (to be very cynical) analysts at investment banks who want to do business with the companies saying nice things about them.* One good source of contrary information are short sellers who don’t believe all the bullpoppy everyone else is slinging.
- This could be a whole discussion all by itself. Changes in rules and market practice have reduced this problem somewhat but it still happens in some ways, like analysts choosing to drop coverage of stocks they think will tank rather than saying bad things about them.
Short interest is publicly reported. Not continuously but often enough that traders on the lookout can know when short interest is high enough that a short squeeze is possible.
The reporting doesn’t tell you who is selling short but short sellers are often public about their positions and trashing the stock, as @MandaJo notes. It’s rarely a secret when a whale is short seller.
