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GameStop Taking Down A Hedge Fund

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1 minute ago, TheHowieLama said:

Cuz you end up holding a shitty companies stock. Overvalued. 

You don't, in theory, if the shortseller must buy it from you and others, which is as I understand it, what would happen with Gamestop here. On such big shorts. If they borrow it at 50 and you then buy it and push the price to 100 when shortseller must  buy it to return the shorted shares.

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I seen someone compare it to musical chairs where the hedgefunds had bought and then removed the chairs so there were even less, redditors cottoned on essentially took the remaining seats and now the hedgefunds need to buy the seats back they where expecting to profit from at a greater cost. Their greed and lack of ethics bit them in the arse.

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40 minutes ago, SasaS said:

You don't, in theory, if the shortseller must buy it from you and others, which is as I understand it, what would happen with Gamestop here. On such big shorts. If they borrow it at 50 and you then buy it and push the price to 100 when shortseller must  buy it to return the shorted shares.

But there is not just one shortseller and there is not a single date when those shorts are due. 

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Just now, TheHowieLama said:

But there is not just one shortseller and there is not a single date when those shorts are due. 

Well, there is apparently one big shortseller, and if there is not a single date, what redditers are doing is pointless. For shorting, there has to be a date or a set time frame, unless I have been getting all wrong.

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Just now, SasaS said:

Well, there is apparently one big shortseller, and if there is not a single date, what redditers are doing is pointless. For shorting, there has to be a date or a set time frame, unless I have been getting all wrong.

See #holdtheline

 

 

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1 hour ago, SasaS said:

Well, there is apparently one big shortseller, and if there is not a single date, what redditers are doing is pointless. For shorting, there has to be a date or a set time frame, unless I have been getting all wrong.

 

This could be wrong but incase it helps (if not someone can correct me) I read someone saying last night that people thinking there's a set date is wrong and they should be prepared to wait a while. The issue isn't so much the date but the fees that start getting more expensive and eventually the short seller just has to cave in if people don't start selling.

 

So it could be a while yet or next week if shorters realise people are completely determined not to sell.

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Apple has the biggest and best ever quarter and has lost 5% of its value since, because these hedge funds had to sell some other stocks to fund this. Same goes for Microsoft losing value. You can see how many stocks are normally sold around FAANG and you can see an approximation of much money these hedge funds has lost. 

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4 hours ago, Red Phoenix said:

 

This could be wrong but incase it helps (if not someone can correct me) I read someone saying last night that people thinking there's a set date is wrong and they should be prepared to wait a while. The issue isn't so much the date but the fees that start getting more expensive and eventually the short seller just has to cave in if people don't start selling.

 

So it could be a while yet or next week if shorters realise people are completely determined not to sell.

Might be true, this from the Fortune article:

"Still, GameStop shares sold short currently amount to more than 113% of the company's total outstanding shares, making it the market's most shorted stock by that measure, according to S3.

 

That's also made shorting GameStop outrageously expensive, and yet investors are paying the price: The borrowing fee to short GameStop stock is now nearly 30%—with the fee rising to 50% for those making new short bets on GameStop. By contrast, the average borrowing fee for shorting U.S. stocks is under 1%, S3 says."

https://fortune.com/2021/01/29/gamestop-stock-how-much-hedge-funds-have-lost-sellers-losses-gme-steve-cohen-point72-andrew-left-citron-research-short-squeeze/

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17 hours ago, M_B said:

You have to pay a fee to borrow them, and the share price won't fall if nobody sells. In fact it will go up and you'll be f**ked. Shorting doesn't make a share price goes down. Only folks selling shares can make the price go down in a free market.

 

If you keep borrowing and selling the same shares, then you can trade over 100% of a stock. You can short 2000% if you want, but the price still won't go down unless someone sells.

 

The other side of the coin is buying a share and telling everyone they should buy it so the price goes up.

 

Shorting is bloody dangerous - you can easily lose your house - but it is an essential maket mechanism to keep the market honest and prices reflecting a true value.

Thanks, I now kinda understand the what of it. Still dont understand the why or how.

Why can shares be borrowed.

How can more than 100% of shares be in play. Just 100 shares of company XYZ exist. How can 2000 of them be in play.

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3 minutes ago, SilverSong said:

Thanks, I now kinda understand the what of it. Still dont understand the why or how.

Why can shares be borrowed.

How can more than 100% of shares be in play. Just 100 shares of company XYZ exist. How can 2000 of them be in play.

From my own limited understanding a company can have thousands or possibly millions of shares in it? I assume though that more shares can mean less value unless there is a demand for them?

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17 minutes ago, VladimirIlyich said:

From my own limited understanding a company can have thousands or possibly millions of shares in it? I assume though that more shares can mean less value unless there is a demand for them?

He's talking about the case where a company has more shares involved in various deals than it has actual shares in total. So if Gamestop had 1 million shares issued, then the hedge fund had made shorts on 1.4 million of them, meaning they'd have to buy back the shares multiple times. I'm sure I read a while back that this applies to gold too- if all the investors in gold suddenly wanted an actual physical piece of gold, then there wouldn't be enough gold in the world to satisfy the demand by quite some margin.

 

This is the kind of thing that stumps me with finance, it's not just high end gambling, but you're trading on stuff that doesn't even exist.

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15 minutes ago, SilverSong said:

Thanks, I now kinda understand the what of it. Still dont understand the why or how.

Why can shares be borrowed.

How can more than 100% of shares be in play. Just 100 shares of company XYZ exist. How can 2000 of them be in play.

A broker can either lend the shares in his pool, or use shares from holders who allow their shares to be borrowed.

 

So if a company has 100 shares. A shorter borrows 10 of them and sells them. If those shares are available to borrow again, then the shorter keeps borrowing and selling the same shares. The same number of shares exist, but the shorter could in theory accumulate a debt of shares greater than the number that exist.

 

The problem for the shorter is that at some point those shares have to be returned to the broker. The more there are to return, the more difficult it is to get hold of them if others are trying to get them too.

 

 

 

There are other forms of 'shorting'. Spread betting, or credit default swaps (as seen in the Big Short) for example. But this is the one being used with GameStop.

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I just watched a video of a billionaire crying about this. He said it was a way of attacking wealthy people, it was inappropriate and we should be working together, people are getting their checks from the government and using it to damage investors. He cries and I nearly had a wank. He will still be vastly wealthy after all this but he showed his worth, soulless greedy all that matters is money and the fucker lost one bet in a game they thought they owned.

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The problem as I see it is that the regular investor in this case just cannot win.

 

By artificially inflating the price of the share, the Hedge Fund has been burned for sure. But it has also now created a massively overblown share price that is even more ripe for shorting. The Hedge Fund and pretty much every shorter out there will now open fresh short positions and will make huge profits when the price eventually collapses.

 

So the only way to combat them is for the price to keep rising which means people have to keep buying on top of people never seliing. But then the same situation will repeat. I don't see how they can win - if anything, they are just creating a situation where the Hedge Fund will make even more profit than it could ever have dreamed of.

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17 hours ago, Bobby Hundreds said:

I seen someone compare it to musical chairs where the hedgefunds had bought and then removed the chairs so there were even less, redditors cottoned on essentially took the remaining seats and now the hedgefunds need to buy the seats back they where expecting to profit from at a greater cost. Their greed and lack of ethics bit them in the arse.

The hedgefund isn't able to remove the chairs.

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15 hours ago, Red Phoenix said:

 

This could be wrong but incase it helps (if not someone can correct me) I read someone saying last night that people thinking there's a set date is wrong and they should be prepared to wait a while. The issue isn't so much the date but the fees that start getting more expensive and eventually the short seller just has to cave in if people don't start selling.

 

So it could be a while yet or next week if shorters realise people are completely determined not to sell.

The shorter will have to pay interest and keep funds in their margin account while they maintain the short position. They won't be happy doing either of those.

 

If the shorter doesn't maintain a minimum amount in the margin account then the broker will force them to close their short position.

 

But I would guess the broker is happy enough to allow it to continue while it's creaming in the interest and the margin account is maintained.

 

The broker is the real winner in all this. Christmas has come early.

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59 minutes ago, M_B said:

The problem as I see it is that the regular investor in this case just cannot win.

 

By artificially inflating the price of the share, the Hedge Fund has been burned for sure. But it has also now created a massively overblown share price that is even more ripe for shorting. The Hedge Fund and pretty much every shorter out there will now open fresh short positions and will make huge profits when the price eventually collapses.

 

So the only way to combat them is for the price to keep rising which means people have to keep buying on top of people never seliing. But then the same situation will repeat. I don't see how they can win - if anything, they are just creating a situation where the Hedge Fund will make even more profit than it could ever have dreamed of.

 

But some Hedge funds are likely to fail if they've gone beyond what they hold? As you say, some of the richer Hedge funds will not need to worry about a short term loss and will make a mint when it starts balancing out, but smaller ones will fail and maybe that's the aim here?

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2 hours ago, Mudface said:

He's talking about the case where a company has more shares involved in various deals than it has actual shares in total. So if Gamestop had 1 million shares issued, then the hedge fund had made shorts on 1.4 million of them, meaning they'd have to buy back the shares multiple times. I'm sure I read a while back that this applies to gold too- if all the investors in gold suddenly wanted an actual physical piece of gold, then there wouldn't be enough gold in the world to satisfy the demand by quite some margin.

 

This is the kind of thing that stumps me with finance, it's not just high end gambling, but you're trading on stuff that doesn't even exist.

Well most things do not exist as such, they exist because there is a system supporting their existence which we assume functions, as with money, it's only money because you are fairly confident there is someone guaranteeing it is not just a piece of paper and all others will assign the same value to it as you do, but in a situation of hyperinflation or war shortages, it becomes just useless paper.

Same with sophisticated financial markets with derivatives and various other instruments, if it all starts unraveling in a crisis, you are left with paper saying you are owed futures based on credit default swaps underwritten by derivatives of David Bowie's future royalties traded in Singapore and currently used to short Ethereum.

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I watched something on Bill Ackman who went on TV for 30 minutes saying the hotel industry is going to die, be worth zero with Coronavirus for half an hour he ranted about Hilton hotels and the destruction of the US economy. He caused stocks to fall hugely and almost immediately bought them all up and made around 2 billion quid. He manipulated the market after being given a platform to take advantage of. He did nothing to earn 2 billion quid, produced nothing, gave no service. Its fucked up.

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4 hours ago, Bobby Hundreds said:

I watched something on Bill Ackman who went on TV for 30 minutes saying the hotel industry is going to die, be worth zero with Coronavirus for half an hour he ranted about Hilton hotels and the destruction of the US economy. He caused stocks to fall hugely and almost immediately bought them all up and made around 2 billion quid. He manipulated the market after being given a platform to take advantage of. He did nothing to earn 2 billion quid, produced nothing, gave no service. Its fucked up.

He created seller anxiety, which caused people to sell off their holdings. He then used the government's planned fiscal stimulus to buy cheap shares.

 

But the real problem here was the impact of coronavirus on the hotel industry, which without government intervention would have collapsed. He wasn't saying anything that wasn't true, and he wasn't forcing anyone to sell their shares.

 

Is it morally wrong? Partially, because he knows he will profit from his words. He would argue that he was the one taking the risk, and that in helping to adjust the share price to fair value, he was doing a service to folks looking at buying the share. He would also say that by putting the spotlight on it, he forced the government to intervene and in doing so he helped to save the industry.

 

But yes, in a world where medical staff are risking their lives each day for a comparable pittance, it is unpalatable.

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