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Comment by newacct583 | Hacker News Reader

The stock is currently around $300, up by a factor of five from last week and much more than that over its historical base. The question should be who isn't shorting GME, not leading questions about a conspiracy theory as to whether or not Melvin actually closed its shorts or not.

I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

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I'm not an expert, but my understanding is that this isn't like a tug-of-war where if there are more people betting short than long then the shorts win. It's asymmetrical. There are a finite number of shares and if enough people are willing to hold them at a certain price, then that will be its price. Someone with infinite money can't force the price to drop. (At least not through normal "market" means that don't involve fraud, theft, coercion, changing the rules, or violence.)

Imagine there's an auction for a one-of-a-kind Stradivarius violin, and it's bid up to a million dollars. Maybe you're a violin expert and know that it's only worth a hundred thousand dollars. But if at least two people are willing to bid it up to a million dollars, then there isn't a bidding strategy to cause the violin to sell for less than a million dollars.

Theoretically you could maybe claim to own an identical violin and be willing to sell it for two hundred thousand dollars, but if you don't actually have one it's a lie, and if people take you up on the offer but the price doesn't go down, you're on the hook for it. Which means you'll have to buy the violin at whatever price the person who wins the auction thinks it's worth, or default on your commitment.

That's actually not how it works. "Holding" a share doesn't, by definition, do anything to its price. The price is determined by trades. That's what a trade is. You can be sitting on 99% of a company, but as long as that 1% of shares is active in a market it will determine what gets reported as the share price.

And yes, someone with infinite resources can absolutely push a share price down. Borrow every share you can and sell it at $1, for example. Obviously no one does this because it's a terrible investment decision, but it's certainly possible.

I suppose that's true, but kind of beside the point. The "official" price isn't really the price if any random person can't actually buy shares at that price. (Kind of like the Raspberry pi zero that can buy for $10 or so but you can't actually buy in volume at that price.) And supposing that you're sitting on 101% of the stock and people are still buying and selling, then what in the world is going on?

(I don't know if that's really what's happening with Gamestop.)

Anyways, even if the price is artificially low because of some artificial trades driving it down, that doesn't really matter in the sense of the shorts being able to unwind their positions. If the people who hold most of the stock aren't willing to sell for less than a certain amount, then that's what the shorts will have to pay if there aren't any other available shares. That requires the people with the stock to hold out for a good price (even if some infinitely wealthy person is borrowing real or imaginary shares and selling them for $1), but if they do they "win". At least, that's my (possibly inaccurate) understanding of the situation.

One aspect of this whole thing I don't understand is what happens in a "failure to deliver" situation? If the shorts just can't or don't want to pay the market price for a share, what's the penalty? Do they get sued? Declare bankruptcy? Is the exchange or brokerage liable for their debts?

> If the people who hold most of the stock aren't willing to sell for less than a certain amount, then that's what the shorts will have to pay

But that presupposes not that WSB was big enough to trigger a short squeeze (something that everyone accepts), but that they are big enough to hold the bulk of the capitalization of (at this moment) a $18B company. Needless to say they aren't remotely that big. This isn't happening.

Sure, there's more going on than just some WSB people holding stock. Probably a lot of other people have gotten onto the bandwagon, and maybe even some hedge funds or bored billionaires. And some of the high prices lately may have more to do with short sellers covering their positions than retail investors buying at those prices.

At the same time, it's worth noting that a lot of the WSB people got in early, and were able to buy a lot more shares at a lower price. That WSB could scrape together 1.8 billion when the stock was worth one tenth what it is now is still a bit far-fetched, but closer to the realm of possibility than 18 billion.

If you can find shares to borrow, are willing to pay the 30% fee, and can handle the swings of a spike higher, go for it.

What will last longer, your solvency or the market’s irrationality?

>[...] are willing to pay the 30% fee [...]

that's per year. If it goes down 30% half a year from now you'll still be ahead.

You can avoid the borrowing fee and margin call risk by purchasing PUT options. The $320 PUT expiring in 1 year costs $240. I purchased 2 contracts on Wednesday bc I don't see a scenario where the price doesn't crash back down below $60 within a year. Expected ROI of 10-20%. Not a large return, but also a pretty safe bet imo considering their ATH prior to this squeeze was $60, and that was back in 2007.

The put options im seeing for 1 year out at $320 currently cost $24,000. (1 contract at 100 shares) what are you looking at that I am not? Am I looking at the wrong thing?

Edit: (sorry I’m not an expert in options)

Options prices are usually quoted per share even though you buy them in increments of 100 shares. So GP paid $25,000 per contract.

Sounds like you're looking at the right contract. Option contracts are written to give the buyer the right to buy/sell 100 shares. So, the minimum investment for the $320 PUT is ~$24K. Contracts with lower exercise prices will be less expensive, but carry more downside risk.

Won't IV collapse from the ludicrous 800% killing any gains? Better to sell cash secured put to gain the premium then sell the underlying maybe?

No idea how time value will trend, but I’m comfortable holding these contracts til expiration at which point I think the price will be sub 60. Could definitely be wrong - I just don’t see how! Investing isn’t my profession.

It seems less risky to buy puts, not short directly. I wouldn’t want to be short if this goes up another 10x, even briefly. It will go back down but you might get wiped out first.

The problem with puts is they can expire before this calms down. If you can get a short in and not get a margin call this is the opportunity of a lifetime. Only the biggest players dare risk it though.

There are long-dated puts that expire 1-3 years from now. In what world would this not calm down before then?

TSLA

Not exactly a 1-3 year timescale, but Elon Musk tweeted something about Signal earlier this month, causing SIGL (completely unrelated to the messaging service to which he was referring) to spike from ~$0.50 to $40 per share. Three weeks later, and SIGL seems to have settled down at around $5 per share - 10x the original price. In other words, the price after the shock is not correlated with the price prior to the shock.

https://en.wikipedia.org/wiki/Tulip_mania speculators enter in 1634, the bust wasn't until 1637, and the bubble had been growing well before then.

I have no idea where we are in this bubble. The timeline will only be known a few years after it pops. There may be false pops on the way up.

This is true, but you can also go broke if you mess up your entry point. What if it happens to triple before it falls back down? Will you have the ability to sustain those losses, psychologically and financially?

I knew a guy that wound up going short on a stock that was going to the moon. He was down almost a years salary at one point. I'd rather go with a longer-term put option to keep the risk under control. It just lets me sleep at night. Everyone is different.

As I said, only the biggest players dare risk a short at this point. I'm not sure even the likes of Bill Gates are big enough, but there are many institutions that are bigger than him.

Shorts aren't free. Even if you know a stock will eventually drop, benefiting from that is not quite so simple.

even in an obviously stupid situation like GME, timing the market is still timing the market.

>I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

That's extremely foolish because it will only make the long position safer and safer.

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