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Comment by hintymad | Hacker News Reader

Some posts below said that banning for hate speech was really a charade. But if that's true, what's wrong with retail investors pooling their resources to squeeze short? How is it different from a hedge fund pooling resources to flex their muscle of financial engineering?

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There wouldn't be anything wrong with that. There'd be a lot right with it, honestly - I would be trumpeting it as a clear victory of the little guy over snobby funds who don't think anyone else can understand finance.

But what's happening right now is almost certainly a pump and dump with a short squeeze as a facade. I've seen a lot of commenters who seem to be grievously misled about the actual mechanics of a short squeeze, and think that short sellers will be forced to buy all their stock at market price on Friday.

okay, but if it was a pump and dump why all the media manipulation and shenanigans? why the coordinated attempts to tank the stock, etc? wouldn't u want it to skyrocket and reap the benefits? i mean that's exactly what a pump and dumper would do, just let it naturally die afterwards.

this "make the regular people mad to fake a short squeeze to pump the stock" is some weird 4D explanation. not saying it's guaranteed, but the simplest answer is sometimes the best, that they are in a position to be squeezed and it's looking more likely.

I haven't heard anything to suggest that the short sellers are forced to buy back the stock either. This is a stock has clearly caught public's attention, Once the hype cycle is over, why wouldn't it regress to the mean? Who's going to believe that the stock stays at this level over the long term?

Fun to talk about though. This is a very entertaining story.

If a short position goes hard against you the brokerage will make you to put up more collateral (money) and if you can't, then your only other option is to buy back some of your position, so yeah, short sellers can be forced to buy back stock.

Also fun, Australian company "GME Resources", trade on the ASX as GME, got to 40% up from its Monday opening price.

I wonder if this is a clever-ish social media algorithm trading, shrewd fund managers or really just desperately mistaken retail traders.

The stock Signal spiked after Elon Musk said to use signal, has nothing to do with the app. A different Zoom spiked at the beginning of COVID. A lemonade company in 2017 put blockchain in its name and watched the stock price soar. Hertz went way up after declaring bankruptcy. I’m willing to bet this is clueless speculators.

Shorts borrow the stock for a time period. Let say you borrowed a stock that is $1 from me with the promise you will give the stock back end of the week + some interest. You sell the stock for $1 end of the week the price is $100 so you are on the hook for stock + interest. As the owner of the stock I will be more interested in getting it back and selling it for $100 rather than allowing you to give me the stock later by extending the loan terms when the price might drop.

There is, large market moves down over last few days are mostly due to hedge funds selling off longs to cover their shorts. If you look at GSVIP ETF (GS ETF for most loved names by hedge funds) it was down 4% yesterday. The short squeeze is real but I think funds are mostly out of it now (or ones remaining in the short have shorted at higher prices and in reasonable proportion of AUM). There's also a direct negative correlation between short interest and Russel 2000 performance over the last few days.

Haven't you read their punch line? Buy high, sell never. They don't care.

Discord is the new SEC now?

No, it would be just another wallstreet company covering for Melvin Capital.

> short sellers will be forced to buy all their stock at market price on Friday.

Isn’t that what it means when someone is naked short?

No.

Naked shorting is when you sell the underlying stock without borrowing it first. You have 2-3 days from transaction to settlement (depending on the market), so you can enter a transaction at T and then only locate borrow at T+2. Obviously, you're running the risk that you can't find borrow in time.

In most cases, however, you short by checking for available borrow first, and _then_ shorting.

I’m not a finance expert, but the hedge funds could have bought GME stocks sometimes between opening their short position and closing it.

The short could have been naked when it was made, but there is nothing stopping the hedge fund from buying the underlying security ahead of the short position closing.

Yes, but you cannot do that when you are short 149% of all stock. There simply is not enough stock available to cover your short position.

Which is why GME was targeted in the first place.

Is the total 149% short closing on this Friday? I was under the impression that the 100+% short position was for all shorts for all closing dates on GME? If the 149% short is spread over multiple weeks/months it seems misleading to quote the over 100% short position as a sure marker of an unlimited squeeze.

For reference, during the unlimited squeeze of Volkswagen’s stocks in 2008 it was estimated that less than 1% of Volkswagen shares were liquid — due to Porsche silently buying the majority of liquid stocks — to cover the short positions which led to the “unlimited squeeze”. I have a hard time believing that The number of liquid GME shares out there are nearly as low as 1%. The only way I could see the liquidity going that low is if institutional investors with tens or hundreds of billions dollars in market cap decide to buy up all liquid shares, effectively lowering the liquidity of GME to similar levels as Volkswagen during the 2008 unlimited short squeeze.

> I have a hard time believing that The number of liquid GME shares out there are nearly as low as 1%.

I believe the float is between 30-40%, hovering around 37%.

Surely if anything they've got 'more naked' - there's more held long, almost conspiratorial borrow disallowing, and >100% short interest.

Usually you borrow stock to sell short. You're short it because you sold it without owning it (and still have to give it back later).

Naked short is selling without even borrowing it.

I thought only market makers can short sale without the share. Is that correct?

Yes, it's not generally something for a retail trader to worry about, since the broker is providing the borrow (or disallowing the trade saying it's unavailable, as many have probably seen with GME), but hypothetically if you managed it it's generally not allowed.

I agree with this post. Although the narrative being spun on WallStreetBets and co wants you to believe in a short squeeze, it doesn't seem like any shorts were actually squeezed. This morning, Melvin Capital and Citron successfully exited their positions in Gamestop. Had there been a true squeeze, the whole point would have been to prevent an easy exit and force them to cause the price to balloon out of control. By exiting, they've proven that although shorts were obviously hurt a lot, the fabled squeeze never came. And to analyze it technically, I know a lot of people are repeating the line about GME shorts being xxx% of the float, where xxx > 100. It's cute, but for a stock with such crazy volume as in the past few days, the shorts being above the float doesn't really matter.

Matt Levine seemed to have agreed with this take on Monday: https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...

And full disclosure, I made a lot of money via GME these past 2 weeks. I'm just not a believer in what's currently being pushed as the truth on social media. To me, GME seems to be a classic case of Tulipmania hiding behind a "short squeeze" mask. It's the latest Bitcoin and no one wants to miss out.

Melvin lost 30% this year...this month

https://www.wsj.com/articles/gamestop-mania-reveals-power-sh...

As I said, they made a painful exit but they were able to get out. If there was a real squeeze going on, their losses would have been eye-watering and far far over 100% of their assets. In 2008, Volkswagen became the most valuable company in the world for a day because short sellers literally _could not_ exit their position. There were no shares to acquire at any price. Gamestop, with 90M trade volume in the last day, does not resemble a squeeze at all. Short sellers are able to leave and lick their wounds. In a squeeze they'd be trapped.

They did not exit and even if they did somehow you can't know that.

Technically GP could know that if they have insider info. But now I'm curious, if GP can't know they exited, how do you know they didn't? Sincerely asking.

If that were true Melvin Capital would just say nothing and ride the profits. If you are a short seller with a covered position (with options) your goal would be to let as many desperate/stupid people enter before the crash because it means there will be less resistance to price drops after the crash because all the dumb and unpredictable money is gone. You would instead push propaganda that your shorts are not covered and lure people into your trap.

If your shorts are not covered then you are basically completely screwed and are willing to do absolutely anything to tank the price as soon as possible even if it means you do not get maximum possible returns. You would push propaganda that your shorts are covered and convince people that you have complete control over the situation.

If you told the truth you would be exposing yourself to unnecessary risk in both cases.

Do you believe CNBC or where are you getting your info that they have covered all their shorts?

Melvin has not closed anything, the stock is still shorted by over 135% of float.

Citron has been coping for over a week now, and is still in it.

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