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0 pointsPeterisP5y ago0 comments

"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.

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ZephyrBlu5y ago

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.

tikej5y ago

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.

foolmeonce5y ago

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.

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treis5y ago

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.

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WJW5y ago

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.

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lepton5y ago

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!

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HappySweeney5y ago

> 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?

lotsofpulp5y ago

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.

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ZephyrBlu5y ago

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.

tikej5y ago

foolmeonce5y ago

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.

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treis5y ago

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WJW5y ago

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lepton5y ago

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!

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HappySweeney5y ago

> 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?

lotsofpulp5y ago

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

j / k navigate · click thread line to collapse