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Comment by WJW | Hacker News Reader

Eventually, either the Wall Street "hive mind" (really though, WS contains thousands of funds and many would be overjoyed to see some competitors fall) or the retail buyers of these companies will be proven wrong. What happens next is way more interesting than the current situation.

Even if it turns out that GME can be short squeezed until there is not a single share shorted anymore, the retail investors will then collectively be HODLing a ton of stock in a company losing hundreds of millions per year. Buying pressure for such stocks is typically low. There is no way everyone can get out at the top, so a lot of people will have to sell at very low prices. This is even true if the original thesis of "we can pump this stock to $1000" is true.

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"There is no way everyone can get out at the top" - this is the big issue here - as far as I understand, the position of WallStreetBets is that there are (were?) so many shorts of GME compared to the shares on market that they would be required to buy all that stock and everyone can get out at the top. I don't feel certain about this (especially since if any of the funds actually go bankrupt, they would default on their obligations, not actually buy the shorted stock at all and just owe some not-fully-collectable money), but that seems to be the whole reason for this situation.

I'm pretty sure a mass buying of the stock would drive the price right into the floor.

So the first few people will get an extremely high price because like you said, the shorts are forced to buy, but as the sell off begins the price will plummet.

But aren’t the shorts for like 140% of the GME stock? That means if everyone holds with prices, sooner or later the shorters will have to buy ALL that stock anyway at nearly any price to cover for the losses and give back shorted stock.

No one actually wants the underlying stock, so it is really just a bet on the value at the moment they theoretically need to hand over the stock between the parties in the contract.

I think the parties would just be exchanging money in lieu of stock and whoever bought the actual stock will have Gamestop stock, so after the utility for screwing the naked shorts goes away, people who bought in the rush will probably lose just like any other pyramid scheme.

> I think the parties would just be exchanging money in lieu of stock

but stocks are marked to market - the lender of the stock will ask back the market value, which if it was being pumped, is going to be high. If the shorts are settled by cash, it's not only not going to make a difference to the bottom line of those shorting, it will also not change the price of the stock.

The people shorting are screwed, but the profits will go to the people who bought the options, who will essentially be selling the contract back and trying not to own the stock. The stock should go into free fall, and the people who bought the stock are also going to be victims unless they sell to an alternate victim before the call date.

It should all be convoluted by policy, settle dates, brokers selling and later replacing stock in margin accounts, etc. But basically anyone involved in buying GameStop stock itself is playing in the options market with insufficient evidence of understanding, and brokers are supposed to interfere with that.

The people shorting - if they can hold out against a margin call - win in the long run. Gamestop isn't worth these prices, and so they can cover in 6 months when interest goes away and the price drops to $2. Even if gamestop is a long term win, it won't be worth more than $10 next year.

No, because the shorts aren't due all at the same time. Say that 15% is due each day for the next 10 days. On day 1 those shorters will buy 15% of the stock and return it. The people they return it to then can sell it to the shorters that need to cover on day 2. Those people then return it and it's sold to the day 3 shorters and so on.

Shorts are rarely due at all. If those who hold the shorts have enough capital then they can just hold until the market loses interest, and then cover their shorts at $2. Or better yet, even with a sky high stock price gamestop could be forced to declare bankruptcy by their creditors. If I had shorts on gamestop I'd be looking to get all the companies bonds I could so that when the bankruptcy goes to court I can say I want the company shut down and the judge listens to me. The company could be trading at $1000/share and suddenly the judge orders it to stop trading and suddenly there is zero value in any shares.

If you want to be a conspiracy theorist, the smart thing for the insiders (those who control the board) to do would be to sell all their shares at this price, then declare bankruptcy. This would be illegal of courses, but there are lots of variations on this theme that make financial sense if you can get away with it.

I think the whole deal here is that people buying $GME wanted to jack the price up exactly to force the shorts into a margin call, and therefore liquidation.

Alternatively, I think a lot of people believed a chunk of put options were expiring soon which would cause a lot of contracts to be executed (I.e. forced stock buying).

There is a more likely alternative than paying "nearly any price", which is that the funds in question go bankrupt and default on any obligations remaining. At that point, anyone who hasn't sold yet will be left holding (call options on) stock worth maybe a tenth of its current price.

If the structurally possible outcomes are:

1) Shorts all come due and hedge funds pay all the retail investors big gains

2) hedge fund dies and defaults so retail get screwed

I’m pretty sure WSB would collectively declare victory. It’s a suicide mission for them.

140% of stock /issuance/, not outstanding. Shorting stock creates new stock. Once all shorts are closed, the 100% of issuance is still outstanding and someone's holding it. Not everyone can get out!

That doesn't mean the same people. Gamestop does have a long term plan. If it works out the company can be worth money. Buying Gamestop for $2 at the bottom in a few months might be a reasonable risk for the final person holding the bag.

> I'm pretty sure a mass buying of the stock would drive the price right into the floor.

Could you explain this? Doesn't increased demand drive the price upwards?

Increased demand relative to increased supply drives price upwards. If the supply curve shifts more than the demand curve, the price goes lower.

For a retail business that earns single digit profit margins with no moat, no employed talent, and no real assets, I can only assume once the supply curve starts moving, it will move fast as everyone tries to exit.

> There is no way everyone can get out at the top, so a lot of people will have to sell at very low prices. This is even true if the original thesis of "we can pump this stock to $1000" is true

This is what I've been thinking about the whole time. They can definitely pump the stock if they keep HODLing, since sellers effectively set the price when the short positions have to be closed.

Someone still has to be the bagholder and end up holding near worthless stock at the end of this though.

$GME will come crashing down once the short squeeze is over, and there's only going to be a small minority of retail traders who get out at the top.

People who have bought in later at hundreds of dollars are likely to lose a lot of money IMO. Possibly to the tune of over half their initial investment.

Well, I opened up Reddit an hour ago. It's not just WSB, there's posts all over the place with tens of thousands of upvotes.

The thing that boggled my mind was plenty of people openly asking "Hey, I don't know anything about trading, but I want to join this and buy stock." and other people straight up telling them "Get the app from a broker (not RH!), open an account and buy $GME" (followed by a flurry of rocket and diamond hand emojis)

It is one thing to be told that markets can be irrational and emotional. It's a completely different thing to see it that playing out in real time on social media.

>Someone still has to be the bagholder and end up holding near worthless stock at the end of this though.

The hedgefunds are filling this niche. Trading slowed yesterday because brokers were afraid of going bankrupt.

That was because of liquidity issues.

There's no guarantee hedge funds will be the ones who end up holding stock at the end of this.

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