It was other hedge funds driving the prices of GME and AMC higher. Small retail traders have how much monies combined? They did not drive the stock prices higher which is the big lie of the Reddit posters. Some traders lucked out and got into it as the prices skyrocketed. Most retail traders lost monies. Hedge funds got out at the top and shorted it on the way down, resulting in a quick 50% drop in one day. At the top, all hedge funds including that by Steve Cohen who took the hit, shorted GME and AMC on the way down. Robinhood took a $100 million line of credit probably, from the losses incurred by the retail traders which they had to eat.
GME
- Thread starter andrianov
- Start date
Asking myself this question as well. But if it is a large large crowd on reddit, RH, etc and they are all buying OTM calls and triggering buys from MMs this could happen. I don't know how to quantify how big this army of retail traders is.
Compare that with the billions that the hedge funds have, it is not even close. The big boys (mutual funds, brokers, banks, hedge funds) rule the stockmarket. They can make most stocks go up or down if they so desire. As a retail trader, you would be smart to trade with them and not against them or you would be run over and be left wondering what just happened? Exception, is the penny stocks where retail traders trade against the penny stock gurus and other retail traders trying to take each others monies. That is too small for the hedge funds to get into.
Another GME question: The media has said that the net short position on GME is over 100%. If you need a "locate" from a broker before initiating a short, how does the total get above 100%? Would that include naked calls sold or something?
There is no naked shorts here. The short interest went above 100% simply because the same shares were lent out more than once.
A holds 100 shares of GME. B borrows the 100 shares & sells them short to C (Who is actually a buyer). D borrows the 100 shares from C and sells them short to E (Who is actually another buyer). Here you go, the same 100 shares were lent twice & shorted twice.
When you look at the short interest, it will show 200 shares short while in reality only 100 shares exist. If all the outstanding shares are those 100, then you have a short interest of 200% of the outstanding.
In such a cycle, there are 3 different owners, A (The original owner), C and E, each is supposed to own a 100 shares. But there is only a 100 shares available, so how can this happen?
It's because it's all artificial. These A, C & E shareholders are only shareholders on paper. Since there are 200 shares short outside, it created 2 artificial owners.
If the shorts want to cover, they must find a seller and to cover 200 shares short, you need any 2 of the 3 owners to sell their 200 shares, once this happens, the extra 200 shares disappear (Gets offset) and you are left with only 1 owner having the original 100 shares.
It's very similar to how option contracts are created, except it doesn't have any expiry & there is some original number of outstanding shares there.
Another question, if the company pays dividends, where will the company come with money to pay dividends to the other 200 artificial shares? The answer is they won't. The shorts will pay the dividend (As a cost to their short position) to the 200 shares owners, while the company will only be responsible to pay the dividend to the original 100 shares.
This is not naked shorting. Naked shorting is actually selling short shares where there is no locates. This is not the case here, everytime a short seller in our case sold shares short, there was a locate and a lender willing to lend the shares (Because the shares are residing in his margin account and are shortable).
A holds 100 shares of GME. B borrows the 100 shares & sells them short to C (Who is actually a buyer). D borrows the 100 shares from C and sells them short to E (Who is actually another buyer). Here you go, the same 100 shares were lent twice & shorted twice.
When you look at the short interest, it will show 200 shares short while in reality only 100 shares exist. If all the outstanding shares are those 100, then you have a short interest of 200% of the outstanding.
In such a cycle, there are 3 different owners, A (The original owner), C and E, each is supposed to own a 100 shares. But there is only a 100 shares available, so how can this happen?
It's because it's all artificial. These A, C & E shareholders are only shareholders on paper. Since there are 200 shares short outside, it created 2 artificial owners.
If the shorts want to cover, they must find a seller and to cover 200 shares short, you need any 2 of the 3 owners to sell their 200 shares, once this happens, the extra 200 shares disappear (Gets offset) and you are left with only 1 owner having the original 100 shares.
It's very similar to how option contracts are created, except it doesn't have any expiry & there is some original number of outstanding shares there.
Another question, if the company pays dividends, where will the company come with money to pay dividends to the other 200 artificial shares? The answer is they won't. The shorts will pay the dividend (As a cost to their short position) to the 200 shares owners, while the company will only be responsible to pay the dividend to the original 100 shares.
This is not naked shorting. Naked shorting is actually selling short shares where there is no locates. This is not the case here, everytime a short seller in our case sold shares short, there was a locate and a lender willing to lend the shares (Because the shares are residing in his margin account and are shortable).
Some of the short or long positions are done thru call options or put options as the case may be. You have the added leverage and huge returns if the stock moves a huge amount. Also, the risk of shorting is limited to cost of the premium. If you borrow stock and short it and a stock gaps higher, you have large losses. That is why those hedge funds that were short lost a lot of monies as other hedge funds piled on driving prices of GME and AMC higher. They then shorted GME and AMC after they sold their long positions and made monies on the way down as well.
If there arent already there could soon be 20 million traders with say $5,000 risk capital each on average = $100 billion, even more buying power if they leverage with options.
Eventully these small traders could end up with $Trillions in buying power. Its only a matter of time as retail open ever more trading accounts.
That is not what I hear of traders on other message boards. A lot of them, got their trades closed by Robinhood. A lot of them kept buying at the highest price levels. Some of them whining and crying, probably, lost their shirts already. Most of them probably, using margin to buy shares of GME and AMC. What drove prices on GME and AMC higher are other hedge funds piling in, getting out at the top. Then, they shorted it on the way down too, resulting in 50% drop in one day. We shall see what happens tomorrow and the coming days. Robinhood whose traders have small accounts got a $100 million line of credit from banks probably, to cover huge losses of those small traders, which they had to eat. Now, those same traders restricted to 1 share a piece that they can buy of GME and AMC, among other stocks.
A certain hedge fund in the South Loop is clearing for RH. Some think they are B-booking the small sizes.