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GME and AMC stock action (out of main)
- Thread starter Electroman
- Start date
Any thoughts on why SPCE hasn't blown up considering the short interest?
I bet Chamath has a bunch of that one. I love Chamath and I think he's genuine...but it's interesting.
I bet Chamath has a bunch of that one. I love Chamath and I think he's genuine...but it's interesting.
Bespoke investment group, further information from ceos of webull, rh and Bloomberg have identified it was a clear liquidity crisis today.
https://twitter.com/balajis/status/1354911653582630915
adiggs
Well-Known Member
This is pretty close to my own response to anybody. Everybody in the market invests using their own investing thesis, which is always a combination of the company and it's execution, plus the share price, plus the rest of the market conditions. The market condition (such as short sellers manufacturing 50% more shares than issued by the company) is an important component of those market conditions. In fact I claim that this is/was just as much of a component of fundamental analysis as other more financially oriented, company execution metrics.
In this case, there was a sufficiently on-going concern in the instance of Gamestop (I haven't done my due diligence, so I'm unable to say anything stronger), that a pile of people representing a sufficiently large fraction of the 150% issued plus manufactured shares, to create a short squeeze.
The fact that the retail traders had a better read on the combination of factors isn't relevant if this were a rule of law, fair functioning market.
AND MOST IMPORTANTLY this problem has an easy market based solution. We need very little from the market regulators - just enforce fair market operations (I'm not kidding myself, I know that the deck will always be stacked in favor of the billionaires) - and the market will take care of itself. The Gamestop situation is a remarkable demonstration of just how good the market is at correcting for these peccadilloes by the hedge funds; without help, the hedge funs are on the hook for unlimited losses until the share holders decide to start giving up some of their shares. That could be $500. But it also could be $5000 or $50,000, or even $500,374. The naked shorts using leverage put themselves into that unlimited loss situation, and their brokers / lenders / investors enabled them to do so.
For brokers or market makers that are even beginning to sniff trouble down a path like this, the solution is easy. Raise, and keep raising, margin requirements. And right on up to 100% (no margin) and/or no borrowing shares to short (don't think this would really make a difference). And don't provide any margin on short sales, or at least naked short, positions.
Emphasize in the margin signup paperwork that every margin position is subject to an underlying that goes to 100% (no margin) status. The brokerage will do what they can to provide fair warning, but that market conditions can change so abruptly that any stock can reach this status immediately with no warning.
Frankly, Robinhood and IB should have already been doing this. The fact that they apparently also got caught out by the happenings around Gamestop et.al. means that they had their hand in the cookie jar as well, at least to some extent.
(I apologize to the previous poster and the kind things they had to say about IB - IB failed their customers in this instance, both in getting into a bad enough position to act this way in the first place, and as the rest of the industry has failed by not standing up for the bulk of their customers - at least by number).
adiggs
Well-Known Member
Interactive Brokers Takes Action on Actively Traded Symbols
In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice. We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only. We will continue to monitor market conditions and may add or remove symbols as may be warranted.
Thanks for the link.
To which I have to say to IB - *DAMN* - you almost got it right. I like the 100% margin on long stock positions - that's easy mode. And something they should adopt more aggressively with any and all of their customers in the future.
It seems that IB has been providing too much short lending without enough self-protection, and got too aggressive in their margin requirements. Again the solution - make it clear that short position margin requirements can go well above 100%, with no limit (1000% if that's what they needed here).
Awhile back I did some share lending into Fidelity's fully paid share lending program. Tesla was hard to borrow back then, and it mattered. As a result I learned a lot about how shorting, and short borrowing worked - I wanted to be confident that I couldn't lose my position. I concluded that it was safe, and IB's actions today doesn't tell me that share lending is unsafe - it tells me that IB was too aggressive / insufficiently conservative to manage their business.
For somebody that sells short, the receive the sale proceeds up front have a margin requirement. I don't know what that is specifically, but I would guess something comparable to the margin requirement that would be maintained on that stock in order to buy the shares back at any point in time (can you handle taking on the margin loan).
Meanwhile, in addition to the margin requirement, the short seller ALSO has their account tapped daily (up and down with the share price) for cash that goes on deposit with a 4th party (not me, not the short sellers, and not even my broker). This amount is right at 100% - I think it was actually 102%, and is the final backstop protecting me while lending out my shares. I still risk a large move after hours, but I don't experience any loss or forced sale of shares until my broker is up against the wall and going bankrupt - at which point I get back 102% of the value of what I lent out.
I've been thinking about this, and I think that we can help the wsb folks, ourselves, and every other market participant with a simple incremental change to market regulations. Reinstate the uptick rule for all short sales, for all securities, all of the time.
The uptick rule in place like this will actually take care of a lot of the BS that enables the leeches to siphon cash out of the investing community into their own pockets. Short selling can still exist in the market - by entities with a conviction about the fundamentals of a company, but just like us long buyers, they have to time the market, and they have to hold through up and downs. And they take the same risks of their convictions as we long buyers also take.
And from our Tesla experience, they can't effectively manipulate the share price through aggressive sales, and then passive repurchasing. We see these manipulations daily. They disappear anytime the uptick rule goes into affect. And I believe we've seen plenty of instances where the manipulations are working TOO WELL on a particular day, so they cut it out to make sure they don't trigger the uptick rule.
It has if you look up the 6 month chart. It took out the ATH well before I expected it would. Like a successful test flight, ARKX inclusion etc.
The reason why it hasn't gone completely crazy is:
1.) WSB is not pushing it (yet)
2.) It's never listed on media sites for short squeeze targets
I'm actually very annoyed its up because I'm still building up my position in SPCE because I believe in the company, not to arbitrage a squeeze event.
And as trades go AGAINST them.. start trimming your shorts. They could have gotten off a lot cheaper if they just paid DFV and bring the stock down to some less than 150% short interest.
They deserve EVERYTHING happening to them.
cool. thx for link.
webull quotes as well
https://twitter.com/balajis/status/1354911653582630915?s=21
Very interesting read of the origin of this GME craziness.
"So many folks (esp. the media) are missing the complete backstory on $GME and how we got here. This has been simmering for over a year and the story behind it is great. I’ve been tracking this since September and devoured all of the details from the origin through today."
Continue reading on Twitter
"So many folks (esp. the media) are missing the complete backstory on $GME and how we got here. This has been simmering for over a year and the story behind it is great. I’ve been tracking this since September and devoured all of the details from the origin through today."
Continue reading on Twitter
Shoot, that's a trusting attitude you have there on a stock that's fluctuating at greater than 50% a day sometimes. My take-away from today differs. Isn't collateral 102% on the prior day's close? And no matter what the contract says, I fully expect the broker to stick the losses with the customer and then argue over it in court.
So it's true then? The market's mechanisms almost broke today? I can't wait for tomorrow then, RH has already sent an email out saying they will allow limited buying of GME tomorrow. Probably they will be monitoring their credit lines throughout the day in order to make this possible since they are probably desperate just months before their planned IPO not to lose their entire customer base to competing brokers.
https://www.reddit.com/r/wallstreet..._seconds_from_triggering_market_nuclear_bomb/
I feel like we are this close to triggering a real market catastrophe here. All we need to do is keep buying GME any way we can, until we have exceeded the market's ability to sell us more shares. Then I think something interesting will happen. We may finally see the man behind the curtain who is the one that sells us shares and buys them back.
yeah today I learned a lot about about stock is actually moved around. I press something on robinhood, robinhoods clearing arm puts in an order with DTC (learned what that is today) and pledges x amount of collateral for it till the trade is settled two days later. That collateral is based on volatility.
def didn’t know all this before
but I think you’re wrong about the broader market breaking. Robinhood was simply running out of credit and needed to open emergency lines of credit. The broader market was ok because the intervention wasn’t from the govt.
I also read that DTC negotiated with the SEC to lower collateral requirements to get these stocks trading again
After discussing it with my brother, it seems the tweet failed to disclose that they purchased the shares on margin at above $200/shr. That would fit the conditions necessary for RH to legally close his position at near the low of the day.
dhanson865
Well-Known Member
I've got a few shares of TSLA in robinhood just because I wanted to try it out and bought some to test. Looks like they charge $75 to move the shares to another broker. Should I hurry to move it or just let it ride?
Bet TSLA
Active Member
I have been watching this situation over the past couple of days. It feels wonderful that the short-selling vultures are being given a taste of their own medicine. I want to help out. So on Monday I bought 100 shares of GME @$82.26, figuring that taking shares out of circulation makes life harder on the shorts. Actually, first I bought 100 shares @$97.56 in the wrong account by mistake, and rather than sell them I wrote a Jan 29 call with a 90 strike should, which should get those shares called away at a tiny profit. My thought was that keeps the shares out of circulation until then and also means somebody else bought that call, which also contributes to a short squeeze. Any comments on whether I have that right?
Today I bought one Jan 29 330 call when GME was was at 227. Cost me $25/share. I don't really care much if I lose it all, so long as I can contribute to putting Citron and Andrew Left out of business. He's cost me hundreds of thousands of dollars due to his fraudulent trashing of companies. Any comment on what's the best way to handle closing that trade on Friday to be the most damaging to shorts? I'm thinking I should roll it to next week and a higher strike when I think the stock price is at a daily maximum.
My accounts are at E*Trade. I haven't seen any sign of restricted trading yet.
Edit: Added questions on dealing with tomorrow's call.
Today I bought one Jan 29 330 call when GME was was at 227. Cost me $25/share. I don't really care much if I lose it all, so long as I can contribute to putting Citron and Andrew Left out of business. He's cost me hundreds of thousands of dollars due to his fraudulent trashing of companies. Any comment on what's the best way to handle closing that trade on Friday to be the most damaging to shorts? I'm thinking I should roll it to next week and a higher strike when I think the stock price is at a daily maximum.
My accounts are at E*Trade. I haven't seen any sign of restricted trading yet.
Edit: Added questions on dealing with tomorrow's call.
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Bet TSLA
Active Member
Yeah, it's all legal.
I doubt any of those lawsuits will go anywhere. All agreements with brokerages that I've signed pretty much let them do whatever they want with regard to trading. They guarantee nothing. So long as things stay quiet and fairly normal, everything works pretty reasonably. But during a crisis, they are very much going to consider their own safety before their customers' convenience. This is especially true because most customers have no idea how the markets work, who is taking what risks, or even what risks they are taking themselves. They rarely even know the rules surrounding their investments and money.
That includes me to some degree. I know I was surprised when recently, after the closing cross (which I had never heard of in decades of stock trading) on the day of TSLA S&P 500 inclusion, calls I held that expired worthless were assigned. WTF? Oh, they can do that for some period of time after hours! Read the damn rules!
adiggs
Well-Known Member
Maybe it is too trusting of an attitude.
Worth noting, even then TSLA wasn't gyrating 50% a day, day after day. I wouldn't have lent out my Gamestop shares (and I do have 100 now - I didn't know this was coming, but I did intentionally step in front of the train, as my own contribution to the financial burning of the shorts) for the primary point I see you making.
But the point is that the short seller is, in effect, maintaining two different piles of cash (collateral loan with me as beneficiary, margin loan with their broker). One of those loans is solely payable to me in the event that my broker is unable to return my shares to me on demand. That COULD be in such a dynamic environment as we've seen recently, but every broker can and should manage their business in such a way as to optimize returning shares on demand (a right that is part of lending out the shares). Failure to deliver even once is bad - failing to deliver in that fashion at scale will mean they're bankrupt.
That's what the MARGIN requirement is for the short seller. Under the margin rules of their broker, the need to maintain sufficient margin to be able to purchase the stock at market (their broker can make the demand / margin call when the account is insufficient, up to and including liquidation with no warning). With something as volatile as Gamestop, the broker should have long since shifted any short sellers to 100% margin. Or as IB did, because they can't own their shares outright (they've only borrowed them) - IB instituted the 300% margin requirement for anybody with an open short sell position.
Which would matter if the hedge funds used IB as their broker. IB could have used this opportunity to get on a soapbox and speak up for their customers, and explain what was going on and why. They have a unique insight. They failed their customers, and the market, when they didn't speak up.
The second account that you mention - the 102% collateral - is changed daily by my broker, and is 102% of the ending value of the shares that day. That account is solely payable to me, the lender of the shares, should my broker be unable to deliver (which means that their counter broker was unable to deliver, which means the short seller was unable to deliver). And I know up front when I make the lending agreement that the collateral account is marked to market at the closing price each day. It's there for bankruptcy by my broker so my assets aren't tied up while they go through bankruptcy, but I also take on the risk of my broker being unable to avoid bankruptcy and get my shares for me on demand.
All of the brokers are highly motivated to keep that from happen (my first protection) AND I have that 102% savings account (no interest - that's to the benefit of the bank that is providing the collateral account) as my final backstop to being unable to get my shares back.
There were also people at the time when I was learning more about that, that found the protections inadequate / too risky for their taste. I respect that point of view. The point isn't that there is a right and wrong decision about this - it's to understand can be done to reduce the risk, and explain the market mechanisms in place, to ensure that all market participants have an even playing field that includes the protections the brokers needed for the settlement problem being talked about now.
Selling shares short needs to require that they be borrowed first (which is true for all short sales with one exception - the market makers can "create" shares by naked shorting those shares) AND that the brokers do a better job of managing their risk. Market making status needs to be significantly more restricted AND the settlement window for naked shorts performed by market makers needs to be dramatically shorter in time. I think I saw an 11 day settlement (trading days) at some point (but don't quote me on it) - the real point is they have a longer settlement window.
In fact that points to the only way that 150% short can happen - as naked short shares approach the end of their settlement window, you go into the market and buy-to-close your currently open naked shorts that are inside of settlement, and you simultaneously sell-to-open new shares to stay flat. There are probably rules about self-dealing to stop buying and selling from yourself, but you can still swap shares around in a share swapping ring, keeping everybody inside of the settlement window, and keep enough shares up in the air to have 150% short interest. Heck - you don't even need (as best I can tell) to pay interest on your naked short shares! What's not to like!?!
I think that the better risk management doesn't apply to more normal circumstances - they do an excellent job of managing the more typical risk that they see in the market. Which even includes Tesla for at least 5 years (Tesla never saw anything vaguely like 150% short, even in it's most shorted early day. I want to say the peak was something more like 20%; maybe somebody else remembers).
At the 150% level, the short sellers can't just buy 1/2 of the total shares and use that to extinguish those extra 50% of shares that they manufactured. That implies that 1/2 of the company is available to buy. With Tesla as an instance, you'd probably need to buy closer to 100-125% of the shares in the float in order to get the 50% total you need to close the short. Any guesses at what would happen to the TSLA share price with that kind of buying demand?
I think our group estimate for TSLA was something like 25% buying for the S&P inclusion plus related buying, some of which effect was muted by naked shorters, and that official announcement plus actually happening, depending on how you size that up, looks like a roughly 100% run (between the announcement surge into the low 600s, and then the post-announcement run up to the mid 800s).
For a much smaller issue, with a dramatically higher short interest - shares going to the moon sounds completely reasonable to me.
adiggs
Well-Known Member
Yeah - that's rather critical (buying on margin).
For those that aren't clear on this - this is why we're all really careful with margin. At need, your positions can be closed on you without warning. Clearly that's not something any of our brokers want to do with us - losing customers is never fun.
But this is in every one of our margin agreements.
And a 50% move down below one's buy price on margin, especially if one uses most of the margin available, is a good way to find out if your broker is managing the risk to them in your account closely (you won't like the answer
).
Bet TSLA
Active Member
Regardless of what happens next, I think the world has changed and the short-selling hedge funds are going to have to find new tactics.
If AIs can drive better than people, it's pretty obvious they can trade better too. And they'll know all the obscure rules that few people know. And how to take advantage of them. So finding a stock whose float is relatively small, and whose volume is relatively low, and which is shorted enough, and .... Boom! Instant short squeeze. As soon as arbitrage opportunities are recognized they can be exploited in an automated fashion.
But it will get much more subtle. Let's see: we'll generate some uncertainty and mysterious trading around some stock you own, thus forcing your brokerage to raise their margin requirement, thus generating a margin call on your account, and thus getting the brokerage to liquidate some of your holdings. All while you're out of touch on vacation, which the AI knew because you have some revealing credit card transactions it can find out about. And millions of other variations on this sort of thing. Risks you had no idea you were taking will be manufactured and exploited faster than you can react. We'll probably long for the days of simple human crooks.
If AIs can drive better than people, it's pretty obvious they can trade better too. And they'll know all the obscure rules that few people know. And how to take advantage of them. So finding a stock whose float is relatively small, and whose volume is relatively low, and which is shorted enough, and .... Boom! Instant short squeeze. As soon as arbitrage opportunities are recognized they can be exploited in an automated fashion.
But it will get much more subtle. Let's see: we'll generate some uncertainty and mysterious trading around some stock you own, thus forcing your brokerage to raise their margin requirement, thus generating a margin call on your account, and thus getting the brokerage to liquidate some of your holdings. All while you're out of touch on vacation, which the AI knew because you have some revealing credit card transactions it can find out about. And millions of other variations on this sort of thing. Risks you had no idea you were taking will be manufactured and exploited faster than you can react. We'll probably long for the days of simple human crooks.
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