GME short recall question

[GoogTgt]

I'm trying to understand the risks of shorting GME as it seems to spike for no reason and it might do so again in future. Say if I shorted GME at 150, the price goes to $200, the owner of those shares sells them, what happens to my short position? Will I be forced to buy them at $200 and take a 33% loss if there are no more shares available to short? IB had 0 shares available to short for sometime yesterday. I don't want to short if my short holdings can be recalled.

 

[newwurldmn]

I'm trying to understand the risks of shorting GME as it seems to spike for no reason and it might do so again in future. Say if I shorted GME at 150, the price goes to $200, the owner of those shares sells them, what happens to my short position? Will I be forced to sell them at $200 and take a 33% loss if there are no more shares available to short? IB had 0 shares available to short for sometime yesterday. I don't want to short if my short holdings can be recalled.

buy them.

And yes except you won’t get to control the buy to cover order. So expect a real shitty fill.

 

[terr]

It is not usually an "I borrowed from this guy, now he sold and I need to cover" situation. There are hundreds if not thousands of borrowers and hundreds if not thousands of long holders.

The situation of shorts' undergoing a force buy would require that the whole pool of longs that was borrowed from and can be borrowed from is suddenly emptied. Those pools also usually are not limited to one brokerage.

I have no idea how, if such a thing happens, it is decided which individual short sellers are on the hook.

 

[smallfil]

I'm trying to understand the risks of shorting GME as it seems to spike for no reason and it might do so again in future. Say if I shorted GME at 150, the price goes to $200, the owner of those shares sells them, what happens to my short position? Will I be forced to buy them at $200 and take a 33% loss if there are no more shares available to short? IB had 0 shares available to short for sometime yesterday. I don't want to short if my short holdings can be recalled.

When you borrow stock to short it by selling it first, then, buying it hopefully, at much lower prices, your broker in effect lent you shares of someone else. That said, what will make you cover and buy the shares back to close your position is if instead, of going lower, the stock skyrockets like in the case of GME and AMC, you instead, of making monies are now losing monies as the stock climbs higher. "Borrowing shares to short a stock, your risk to the upside is unlimited." If you want to short a stock, the safer way is to just buy a put option. That way, your risk is limited to the cost of the premium. In addition, the leverage will compound your gains if the stock drops like a rock.

 

[ET180]

"That way, your risk is limited to the cost of the premium. In addition, the leverage will compound your gains if the stock drops like a rock."

In the case of GME, that premium will be significant. GME is currently at 100. If you buy the March 19 100 strike puts expecting it to fall back to where it was before (around $45 or lower) sometime over next two weeks, you'll pay 42.40 / sh per put. That means you would need the stock to drop below $58.60 by expiration in order to simply break even. So your upside is about $20 / sh and your risk is 42.40 / sh. Doesn't sound like a very good trade. If you buy the put expiring next week, then it's around 25 / sh, but then you need it to drop below 75 within a week. I think that will probably happen, but how much further will it go in just a week? Will it make it to 60? Then your upside is $15 and your risk is $25. Still not a good trade.

 

[smallfil]

"That way, your risk is limited to the cost of the premium. In addition, the leverage will compound your gains if the stock drops like a rock."

In the case of GME, that premium will be significant. GME is currently at 100. If you buy the March 19 100 strike puts expecting it to fall back to where it was before (around $45 or lower) sometime over next two weeks, you'll pay 42.40 / sh per put. That means you would need the stock to drop below $58.60 by expiration in order to simply break even. So your upside is about $20 / sh and your risk is 42.40 / sh. Doesn't sound like a very good trade. If you buy the put expiring next week, then it's around 25 / sh, but then you need it to drop below 75 within a week. I think that will probably happen, but how much further will it go in just a week? Will it make it to 60? Then your upside is $15 and your risk is $25. Still not a good trade.

You are right. Should have qualified my statement. All things considered, assuming the cost of premium is reasonable, you will probably, make monies. I cap the premium I pay to around $500-$600 per contract. The most I have paid was $800 per contract for NVDA because the premiums are so rich. Still, borrowing shares is very risky, the risk to the upside is still unlimited.

 

[ajacobson]

It's entirely possible your short could be bought in.

 

[MoreLeverage]

For GME, IB had shares available recently and tons of shares until this recent second move where they still had some. If it did run up a lot, shares would probably become unavailable for additional short selling.

what happens to your short in that case? IF your lending counterparty sells (so you can’t keep borrowing those shares) AND your broker can’t find any more shares to borrow at any price, then you might get a buy-in warning in the afternoon telling you that you might face a buy-in the next day if shares couldn’t be borrowed by then. At that point, you can cover yourself or take your chances, and if you get unlucky the next day, you’ll get bought in at VWAP (this isn’t always unlucky tho, if the stock keeps going higher and you would have held).

On very rare occasions, you’ll get a “recall” where the other broker buys the stock themselves in the open market and bills you that price and you get no warning. But that’s very rare.

 

[traider]

For GME, IB had shares available recently and tons of shares until this recent second move where they still had some. If it did run up a lot, shares would probably become unavailable for additional short selling.

what happens to your short in that case? IF your lending counterparty sells (so you can’t keep borrowing those shares) AND your broker can’t find any more shares to borrow at any price, then you might get a buy-in warning in the afternoon telling you that you might face a buy-in the next day if shares couldn’t be borrowed by then. At that point, you can cover yourself or take your chances, and if you get unlucky the next day, you’ll get bought in at VWAP (this isn’t always unlucky tho, if the stock keeps going higher and you would have held).

On very rare occasions, you’ll get a “recall” where the other broker buys the stock themselves in the open market and bills you that price and you get no warning. But that’s very rare.

Say you have a short call and assigned on Monday for -100. Will you be given time to cover or will the broker just force buy in on Monday open at the worst fill possible.

 

[ET180]

Say you have a short call and assigned on Monday for -100. Will you be given time to cover or will the broker just force buy in on Monday open at the worst fill possible.

If you can't meet the margin requirement, the amount of time you have to cover will depend on the broker and probably how far past margin you went. As far as assignment, if you are short shares, it seems that the OCC would ask for shares the night of expiration. At that time, the broker would have to find shares to deliver. Although in most cases, the broker can probably determine ahead of time whether or not that assignment will happen and likely does the share allocation before the trading close on expiration. I suspect that's what happens, but not 100% sure.