I was under the impression that a number of big investors did just that?
I neither hang around Reddit nor follow financial sites in general so I’m probably not the best to judge their motives, but if I had been following r/wallstreetbets back when GME was selling for 10/12 bucks a share I’d have gladly taken a position of $50 to $100 just for the opportunity of poking some fat cat in the eye and the sheer entertainment value, not the prospect of making money. Even if I lost everything, it’s limited to the position; I’ve spent more and gotten less value many, many times.
Given the blowback on Friday, I wonder if we are going to see some rule changes this week to punish the wallstreetbettors. It is not unprecedented, the government did the same thing to the Hunt Bros during their silver buying.
I think there are two groups among the online investors. One group is doing what you described; they’re essentially spending money they can afford to throw away in order to take down a company which symbolizes thing they don’t like. The other group is in this to make money - and as I said, they need that company to survive in order to do that.
I have heard that there are some heated arguments across this divide in the online forums where this situation is being discussed. And apparently there have been accusations that some people are publicly advocating one position while secretly following the other one.
People being deceitful about finance? I’m shocked, shocked I say!
It’s possible to have more than 100% short interest because stocks can be loaned out multiple times. Everyone owns the stock that they sell by legitimately borrowing it from someone else. It just so happens that a lot of those shares had been bought, lent out, and sold already in the past. But once they get borrowed and sold again, they’re just like any other share. You have one person short one share, and one person long one share, but without either owning the actual share, which has returned to the market. The long person gets the return on the stock without voting rights and without the tax advantages of qualified dividends.
I have no position in GME but tomorrow is going to be interesting.
From my brokerage and Finviz:
Price current: $325
Short interest: 121.91% Less than 140% but there not making much of an inroad. 69.7 million shares outstanding but 85 million shares are shorted. My flawed math [69.7x1.22x325]? is $27.6 billion to cover if the lender(s) get pissy.
Institutional interest: 112.39% Ouch! Without some action by the market - some heads will roll. I don’t see a logical out. Melvin has suffered a 53% loss in January - $8bln in assets. Depending on what quantity of the short is laid on them, Melvin is in serious trouble.
OR Gamestop sells/issues more shares at the much higher valuation, raises hugh capital, buys several legitimate on-going companies. The diluted shares outstanding drop the price to less the stroke level for the shorts. The redditors win - and ponies for everyone.
I see this a lot- but how quickly can a company issue new shares? I assume there’s a fair bit of paperwork and whatnot.
The problem with trying to make a secondary offering is that anyone with real money knows that the current price is unsupportable on fundamentals, and you’re going to be very unlikely to find anyone willing to underwrite it at an offering price anywhere close to its current market price. Maybe WSB can found an investment bank and help them out.
Does the standard short contract allow the lender to force the shorter to cover any time they feel like it? I thought as long as you maintained the margin requirement, you were fine.
From news reports, it looks like the reddit group is now targetting silver rather than another stock. I’m not sure that’s going to work, since the amount of silver in the marketplace is not fixed. Also there’s a whole lot more of it than the stock of a single smallish company like GameStop.
There is history of attempts to corner the silver market. The Hunt brothers tried to do that back in 1980. That failed.
I thought the part about “getting ponies” would tip off the humor. I’ll post more emojis next time.
How does one short more than 100% of the stocks of a company? I thought that would be “naked short selling”?
There seems to be a consensus that they aren’t doing that now, while of course, it being a group of millions, some obviously are. They’re mostly sticking with GME. They can’t even agree on how to target silver.
You can’t short more than 100% of the stock of a company because you can’t obtain that many shares, but a group of traders can. Each individual transaction concluded successfully with the seller delivering the securities to the buyer within however many days. The “same” shares could have been sold short several times in succession. I.e., a more than 100% short interest is not evidence of shady naked short selling.
I’m not saying there is something shady going on; I’m saying I don’t understand it.
How can you short more than there is? How is that not “naked”?
Well, I don’t know anything behind the scenes of the stock in question so let us speak hypothetically. I want to sell an asset short. I find a buyer, borrow the asset, and deliver it to the buyer. I did not sell shares that do not exist— no naked short. However, the shares that were sold did not evaporate; they can be sold on and on making a huge amount of short interest even though none of the trades were naked. Of course, all these short sellers have to buy and return the same amount of shares later; if the price rises it is their problem.
FWIW, I got the ponies joke but failed to understand that the underlying premise (issue new shares ) was part of it.
Because AMC is saying they might do just that, to which I had the same reaction as you- who’s going to think that’s a good buy?
So I am selling the stocks to the same party I am borrowing them from?
No, you borrow stock from A and sell to B. Now C can borrow from B in order to sell to D. That’s 2 short sales involving 1 outstanding stock.