GameStop, the world's biggest retail video game chain has had a wild and turbulent 12 months to say the least. As the video game market continues on its inevitable trek to becoming more and more of an entirely digital industry, GameStop has clearly been struggling to adjust to the changes. GameStop drama has been covered here on GBAtemp in the past, from its switch to focusing on merchandise and legacy games, to its decision to remain open following the COVID-19 pandemic, to its reversal of that decision. However, perhaps GameStop's craziest story has very little to do with the financial success of the company itself.

Prior to this month, GME (GameStop's stock ticker)'s 5 year high was approximately $33 in April of 2016. However, that figure drastically plunged down to under $4 in 2020. This month however, that figure has absolutely skyrocketed above anybody's expectations--closing out today (January 27th) at $347.23 a share. Many factors went into this large stock price; primarily a battle waging between investors of the /r/wallstreetbets subreddit and the short seller Melvin Capital. In essence, Melvin is betting that the stock price will fall below $60 by Friday, while hundreds of thousands of investors on /r/wallstreetbets have been rallying together to keep the price above $60 in hopes that it will skyrocket even further. Allegedly, "$1,000 GME by EoW is not a meme!"

Always remember to invest at your own risk, and know that nothing posted on GBAtemp or /r/wallstreetbets regarding this situation should be construed as financial advice.

Source

 

[Ericzander]

Watch out guys you maybe included in a FBI investigation because what you guys did was super illegal in the eyes of Wall Street.

This can't be true because I am forbidden by law to break the law.

I honestly just like the stock.

 

[Foxi4]

Can you explain that part? Afaik, the shorts would want the price as low as possible for maximum profit..
If they borrowed 1000 shares at $20, for a total of $20,000, and sold them. Then bought them back later at $1 each.. they'd gain $19,000 minus interest on the short.

If they borrowed 1000 shares at $20, for a total of $20,000 and sold them. Then bought them back later at $5 each.. they'd gain $15,000 minus interest on the short.

Why would you NOT want the company near bankrupt after shorting at a higher position?

When a company is highly overvalued, a short seller can make bank by staking a bet that that's the case. Other investors can see that, and their own margins can be protected from buying into a company that doesn't really perform well and isn't a sound investment in the long-term. It's a signal to existing and new investors that their money is, possibly, in jeopardy. In order to balance stock prices you need to have weights on both sides of the scale. You also shouldn't put too much weight on either side unless you're planning to crush the scale entirely.

 

[JustBrandonT]

When a company is highly overvalued, a short seller can make bank by staking a bet that that's the case. Other investors can see that, and their own margins can be protected from buying into a company that doesn't really perform well and isn't a sound investment in the long-term. It's a signal to existing and new investors that their money is, possibly, in jeopardy. In order to balance stock prices you need to have weights on both sides of the scale. You also shouldn't put too much weight on either side unless you're planning to crush the scale entirely.

Correct. I understand the balancing part for when it's overvalued. It can be argued though, as many people have argued against shorting. It was made illegal in China and a few other countries afaik. EDIT: Google says banned in France, Spain, Belgium, Italy, Canada, etc)

But in this case, I'm fairly sure that they wanted GME as low as possible and AMC as well. Everyone was calling it the "block-buster" of modern times. Citron putting out tweets that it's worthless lol.

 

[Foxi4]

Correct. I understand the balancing part for when it's overvalued. It can be argued though, as many people have argued against shorting. It was made illegal in China and a few other countries afaik.

But in this case, I'm fairly sure that they wanted GME as low as possible and AMC as well. Everyone was calling it the "block-buster" of modern times. Citron putting out tweets that it's worthless lol.

There was no reason to short the stock besides the pandemic causing shut-downs of brick and mortar locations. GameStop's online back-end is still functioning just fine, and although revenue has decreased, it wasn't wiped out. The recent changes in the company and the exclusivity deal with Microsoft were all good indicators that the company is going to survive, or in fact grow once COVID is a thing of the past. In my estimation the short was malicious, and its percentage of volume is evidence of that.

 

[ThatGamingAirman]

This can't be true because I am forbidden by law to break the law.

I honestly just like the stock.

Yeah but it is because you cost Wall Street millions of dollars by beating them in their own corrupt game so you have to pay for it. If you don’t believe it’s all over the news.

 

[smf]

Why would you NOT want the company near bankrupt after shorting at a higher position?

If every company that got shorted went bankrupt then there would be no companies for you to invest in.
Investors might have thought they could make a dollar a share out of it, doesn't mean they want the company shares to go to zero.

They would only go to zero, if they were already bankrupt.

 

[Foxi4]

Yeah but it is because you cost Wall Street millions of dollars by beating them in their own corrupt game so you have to pay for it. If you don’t believe it’s all over the news.

They can investigate all day - buying stock for a laugh isn't illegal. If anyone engaged in promoting the stock with the explicit intention of dumping their own shares, particularly if they never disclosed that they already own a stake in it, they might be *slightly* more worried, but again - everything here is happening in the open. There is no confusion or misdirection going on, a bunch of "apes" are holding their "banana" until it turns into a gemstone from all the pressure. I've seen some users who don't intend to sell their stock *at all* and are instead planning to order paper certificates as a memento.

If every company that got shorted went bankrupt then there would be no companies for you to invest in.
Investors might have thought they could make a dollar a share out of it, doesn't mean they want the company shares to go to zero.

They would only go to zero, if they were already bankrupt.

In certain scenarios they absolutely want the stock to go to zero purely out of self-interest, claiming otherwise is grossly misrepresenting the shorting mechanic.

 

[smf]

In certain scenarios they absolutely want the stock to go to zero purely out of self-interest, claiming otherwise is grossly misrepresenting the shorting mechanic.

Well that is like saying that everyone who goes long wants the price to go up so to infinity purely out of self interest.

Nobody expects it and wouldn't want it, because it would be a nightmare if every time you went short or long it was that extreme.

The idea that every person who shorts stocks is evil and wants every stock to go to zero is misrepresenting.

 

[Foxi4]

Well that is like saying that everyone who goes long wants the price to go to infinity purely out of self interest.

Nobody expects it and wouldn't want it, because it would be a nightmare if every time you went short or long it was that extreme.

I already explained why a short seller might be particularly interested in shorting a company into oblivion, you didn't respond to that so I'll say it again - if a company goes bankrupt and enters liquidation, the stock becomes delisted and the borrower does not have to return anything to the lender. They get to pocket all of the profit themselves. Once the value goes all the way down to zero, there is nothing that *can* be returned. Investors engaging in such shorts have a vested interest in the company dying a quick and quiet death, and there are scenarios where such a result can be triggered using market forces. Shorting +/- 140% of all available stock *might* be a good indication of that being the intention. That alone should be illegal - I shouldn't be able to borrow 15 apples from you and sell them on the promise that I'll buy you 15 apples later if you only have 10 apples yourself. I don't know how this situation is even remotely confusing.

 

[smf]

Shorting +/- 140% of all available stock *might* be a good indication of that being the intention.

That might be an indication they thought that it would go to zero. What are you saying they should do in that circumstance?

I agree there ought to be some kind of regulation, but I am not entirely sure what the US would tollerate.

 

[Foxi4]

That might be an indication they thought that it would go to zero. What are you saying they should do in that circumstance?

I agree there ought to be some kind of regulation, but I am not entirely sure what the US would tollerate.

I suggest that you probably shouldn't be able to sell things that don't exist, on the stock market and in real life. It *might* be a sensible principle.

 

[smf]

There is no confusion or misdirection going on, a bunch of "apes" are holding their "banana" until it turns into a gemstone from all the pressure. I've seen some users who don't intend to sell their stock *at all* and are instead planning to order paper certificates as a memento.

I think it will be interesting to see what happens in the fall out.

https://www.bloomberg.com/opinion/a...etbets-face-sec-scrutiny-after-gamestop-rally

Maybe everyone will be buying lambourghini's, maybe we'll have a load of people who find that they did something illegal.

I suggest that you probably shouldn't be able to sell things that don't exist, on the stock market and in real life. It *might* be a sensible principle.

If I borrow all the shares saying I'll return them in June and sell them and then borrow all of them them from whoever eventually bought them and sell them again saying I'll return them in December then they existed.

If I said I was going to return all 140% on the same date then that is kinda dumb, do we know what percentage needs to be returned next week?

How would a cap on short sales work?

 

[Foxi4]

I think it will be interesting to see what happens in the fall out.

https://www.bloomberg.com/opinion/a...etbets-face-sec-scrutiny-after-gamestop-rally

Maybe everyone will be buying lambourghini's, maybe we'll have a load of people who find that they did something illegal.



If I borrow all the shares saying I'll return them in June and sell them and then borrow all of them them from whoever eventually bought them and sell them again saying I'll return them in December then they existed.

If I said I was going to return all 140% on the same date then that is kinda dumb, do we know what percentage needs to be returned next week?

How would a cap on short sales work?

That's the reason why the short interest is at such a high value, the shorts have repeatedly doubled down on the same bet, compounding short interest. It keeps growing by the way, the stock will *eventually* go down, and the hedge funds have to make up for their losses *somehow*, so this quickly became a tug of war. Ben Shapiro has an excellent break-down of the situation - it's a very expensive prank, but it's not illegal. In addition to being a talking head, which might turn some viewers off, he's also a lawyer, Harvard Law graduate in fact, so his opinion carries some weight here.



As for capping short interest, I think it's fairly obvious that once it reaches 100% no further options should be accepted. The reason for this is because not all shares are lendable and there are no guarantees that a borrowed stock can even be returned at all by due date unless you somehow limit overborrowing. You're operating on the assumption that it will be returned and possible to be borrowed again - you're speculating that this will be the case in the future, and it might not be. Again, I can't borrow *the same apple* twice at the same time, I need to *return* the apple first so that you have an apple I could borrow. It is physically impossible for me to walk out of your house with *two apples* if you only have *one*, regardless of when I intend to return each one. I can do that with stock, and I shouldn't be able to.

https://www.investopedia.com/terms/n/nakedshorting.asp

Edit: I misunderstood what you meant, so yes, that's why the interest is so high and that's why people are "holding". If you're interested in specific values and dates, you can look them up in an order book or online.

 

[smf]

As for capping short interest, I think it's fairly obvious that once it reaches 100% no further options should be accepted.

I guess forcing it to 100% through some means to prevent someone else shorting it would probably be illegal, but is 100% good enough? The VM short squeeze wasn't at 100% AFAICT.

Maybe there should just be a mechanism where the trade times out and both sides get punished somehow, nobody deserves to be rewarded in this situation.

 

[Foxi4]

I guess forcing it to 100% through some means to prevent someone else shorting it would probably be illegal, but is 100% good enough? The VM short squeeze wasn't at 100% AFAICT.

Maybe there should just be a mechanism where the trade times out and both sides get punished somehow, nobody deserves to be rewarded in this situation.

You're right. 80%, or even 60%, is perfectly acceptable to fulfill the sole purpose of short selling - indicating to other traders that the company is grossly overvalued and the ticker needs a price adjustment. Alternatively the cap should be based on available lendable shares at any given time and not outstanding shares as a total. You could also introduce a pre-set buffer percentage. Many solutions out there, really.

As for the rewards, they're a necessary pre-requisite and only motivator to participate in the system at all. The whole stock market is "artificial", it's a mechanism to facilitate investment. I don't see why investors shouldn't get a cut for protecting other investors, provided it's done in good faith. It's not like the money is magically conjured - it is a sale of a share followed by a purchase of a share and its return, with commission. I can see how the transaction could be nullified in the event of the company failing completely, but there's no reason to throw the baby out with the bath water.

This is a matter for the regulators to resolve - the current situation underlines that the safeguards we use are insufficient and need an update. Meme stocks aren't going away after $GME, they're here to stay, the genie is out of the bottle. We've seen extraordinary growth in the retail investor sector, to the point that the various apps available couldn't handle the load. It is my opinion that the number of people who invest on the stock market should increase, not decrease - it's a highly effective method of wealth building. All of these things are, in my opinion, positive consequences. The market grew substantially, and that's great - money is happiest when it's moving.

 

[leon315]

hi guys, 1st of February is USA's National Freedom day, is nyse scheduled to open on holiday too?

 

[DeMoN]

People keep saying that hedge funds are paying 80% interest on their shorts. This is incorrect, the borrow interest rates are for retail investors. Hedge funds don't pay interest on shorts, they have to provide a full cash collateral which gets refreshed daily. If the hedge fund cannot meet this requirement and defaults on the loan, the broker simply keeps the cash collateral and the hedge fund doesn't have to return the shares. Thus, the short position gets closed without any shares being bought.

 

[ThatGamingAirman]

They can investigate all day - buying stock for a laugh isn't illegal. If anyone engaged in promoting the stock with the explicit intention of dumping their own shares, particularly if they never disclosed that they already own a stake in it, they might be *slightly* more worried, but again - everything here is happening in the open. There is no confusion or misdirection going on, a bunch of "apes" are holding their "banana" until it turns into a gemstone from all the pressure. I've seen some users who don't intend to sell their stock *at all* and are instead planning to order paper certificates as a memento.
In certain scenarios they absolutely want the stock to go to zero purely out of self-interest, claiming otherwise is grossly misrepresenting the shorting mechanic.

Yeah and while I totally understand I’m just making a heads up because that’s what’s happening.

 

[smf]

As for the rewards, they're a necessary pre-requisite and only motivator to participate in the system at all.

I mean specifically if everyone can see the stock is shorted 100% then both sides of the trade are in the wrong if the stock gets shorted. You shouldn't be able to benefit from a short squeeze that you created, or at least the benefit should be limited in some way.

 

[xdarkx]

I mean specifically if everyone can see the stock is shorted 100% then both sides of the trade are in the wrong if the stock gets shorted. You shouldn't be able to benefit from a short squeeze that you created, or at least the benefit should be limited in some way.

I don't get why you are complaining about why people can't benefit from short squeeze. Short sellers have been benefiting a lot from short selling a lot of companies for decades. If you are complaining about how people shouldn't benefit from a short squeeze, then it would also make a lot of sense that short sellers should not be benefiting from short selling either.