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No. of Recommendations: 6
Every bubble needs its "moment". I am starting to think this GameStop could be it (like Pets.com was in the early 2000). This won't end well (of course it could go on for a fair bit longer).

tecmo
...

PS: I also thought Hertz was a potential tipping point - but this feels like it is getting much more media attention.
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No. of Recommendations: 3
Every bubble needs its "moment". I am starting to think this GameStop could be it

Kinda feeling that way too, with some other anti business signals in the background thrown in, thought this was a good GME summary, or at least an entertaining one, I had not been keeping up:

https://www.battleswarmblog.com/?p=47097
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No. of Recommendations: 16
Kinda feeling that way too, with some other anti business signals in the background thrown in, thought this was a good GME summary, or at least an entertaining one, I had not been keeping up:

https://www.battleswarmblog.com/?p=47097

It's certainly nice to watch...from the sidelines.
Somebody bought at over $480 an hour ago. It's at $264 right now.


Sundry comments:

* Do we really believe that they were more shares short than exist? Colour me dubious.
Sounds more like a flaw in the way the short percent was calculated.
(Unless you count short derivatives, of course, but the link said shares)
Among other things, it would be wildly and visibly illegal.

* He who sells what isn' his'n
Must buy it back or go to pris'n

* The one thing I haven't quite spotted is the motive for the swarm.
Pumping a stock's price is expensive and risky.
Sure, some will make some bucks speculating on the way up.
Others in their group will lose the same amount on the way down.

Jim
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No. of Recommendations: 1
"It's certainly nice to watch...from the sidelines.
Somebody bought at over $480 an hour ago. It's at $264 right now."


198.00 as of 10:00


Of ALL the places for posters search out and provide "a warning for" I find it curiously fascinating how frequently over the years people come to visit this board to do so.


jk
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No. of Recommendations: 0

Of ALL the places for posters search out and provide "a warning for" I find it curiously fascinating how frequently over the years people come to visit this board to do so.


One of the most entertaining threads in a long time over at bogleheads.org is on GME. A forum where people don't believe anyone can beat the market, nor should anyone buy individual stocks has a 25+ page thread on it :)
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No. of Recommendations: 1
In the first 2+ hours of trading

9:30 AM : $250
10:00 AM : $460
11:30 AM : $115

and this is not some micro-cap; there is billions turning over every hour on this....

fun to watch

tecmo
...
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No. of Recommendations: 6

One of the most entertaining threads in a long time over at bogleheads.org is on GME. A forum where people don't believe anyone can beat the market, nor should anyone buy individual stocks has a 25+ page thread on it :)


The Bogleheads forums have had a number of threads about Bitcoin recently.

You know that there's a bubble when even Boglehead members are talking about it and especially when they're buying into it. That's something given that the default long-term investment is the S&P 500.

At the same time, most Boglehead members are skeptical when I talk about how bullish I am on international stocks. There's more interest in Bitcoin and GameStop than there is in Japanese stock ETFs and emerging market stock ETFs.

I'll know it's time to start selling international stocks when international stock bulls no longer look like weirdos.
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No. of Recommendations: 2
I wonder if GameStop is the US stock market bubble's Jump the Shark Moment.

According to John Train, a sign of a bubble being stretched thin is the inflation of low quality stocks.

That said, I still don't do puts or short selling. The deadline is the deal breaker for puts. The risk of margin calls is the deal breaker for short selling. So I'll just hang on to my international stock ETFs and just run out the clock. Investing is one of the few endeavors in which it pays to be too lazy or tired to act or too busy to pay attention.
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No. of Recommendations: 0
I'll just hang on to my international stock ETFs and just run out the clock.

Care to share which ones?

I recently allocated funds into the following:
ECNS
DEM
DVYE
DGS

Cheap by most measures.
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No. of Recommendations: 0
I'll just hang on to my international stock ETFs and just run out the clock.

Care to share which ones?

I recently allocated funds into the following:
ECNS
DEM
DVYE
DGS


We have one pick in common - DGS. My other top picks are DFJ, MOTI, DGRE, IQIN, GWX, and FNDC.

MOTI and DGRE specialize in higher quality stocks. My other picks are diversified plain vanilla stock funds.
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No. of Recommendations: 5
9:30 AM : $250
10:00 AM : $460
11:30 AM : $115


A bunch of apps prevented buying on this, so people could only sell, leading to others thinking it was crashing. RobinHood also force sold some accounts.

There is something probably buried in the T&C that lets them do this, but it is not something I would have expected.
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No. of Recommendations: 5
You cannot buy, or write options on GEM, AMC in Robinhood and IB. What a shame. I can understand they eliminate margin or require 100% margin, but stopping you from trading is playing mommy.
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No. of Recommendations: 0
Robinhood has been giving margin accounts with options privileges to new and inexperienced investors. The SEC needs to do a major peepee whacking over this.
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No. of Recommendations: 0
You can buy GEM options at Schwab.
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No. of Recommendations: 16
You cannot buy, or write options on GEM, AMC in Robinhood and IB. What a shame. I can understand they eliminate margin or require 100% margin, but stopping you from trading is playing mommy.


I agree entirely. As an Interactive Brokers investor (as well as a client), I object to this action in principle (they should give their clients the benefit of the doubt about knowing what they are doing) and out of the company's interest (they may lose frustrated clients who are perfectly entitled to try to take advantage of this market craziness.) I think it is stupid to buy shares of GME (not GEM), but I have no right to impose my opinion on other people, and I am happy to levy a small toll on this stupidity.

But trying to see the other side of the argument, I suppose there might be practical advantages to not allowing shorting on some of these very volatile stocks. If I had shorted 1000 shares of GME 2 weeks ago (as I did consider doing, to my horror), say at $20 a share, and the price went to almost $400, I would have definitely been forced to cover, maybe at prices around $100, even if I had started with a lot of margin in my account. Then what happens if the market quickly jumps to $400, as it did? Interactive Brokers is not interested in having to deal with insolvent investors who can not make good on their covering obligations, and perhaps even legal action coming from them (whether they have a solid case or not.) So I suppose it may be sensible to stop your clients from self-immolating and playing in this casino.

dtb
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No. of Recommendations: 5
So Robinhood is restricting trades in GME (and others) to just closing their position (no new buys). I have to say this is going to feed into a lot of the "system is rigged" mentality that was such a force during the US election.


tecmo
...
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No. of Recommendations: 2
Updated Timeline


9:30 AM : $250
10:00 AM : $460
11:30 AM : $115
12:00 PM : $300
2:00 PM : $250
2:10 PM : $490 (never use market orders!!)
2:15 PM : $237


tecmo
...
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No. of Recommendations: 2
This is the exact response I would expect from Robinhood, seeing that they were blamed, ripped apart and threatened with regulations last time, with the perception being they didn't do enough:

https://www.cnn.com/2020/07/14/investing/robinhood-suicide-c...

So damned if you doing something, damned if you do nothing.
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No. of Recommendations: 3
And the saga continues


9:30 AM : $250
10:00 AM : $460
11:30 AM : $115
12:00 PM : $300
2:00 PM : $250
2:10 PM : $490 (never use market orders!!)
2:15 PM : $237
4:00 PM : $193 (market close)
6:00 PM : $293 (up 50% after the close - Robinhood has lifted the buy ban)


Stimy + GME = Stonks!

tecmo
...
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No. of Recommendations: 1
While GME has been fun to watch from the sidelines, I don't think we've quite gotten to the same point as the dot-com bubble just yet. Case in point is the infamous e-trade ad circa Jan-2000:

https://adage.com/videos/etrade-wasting-2-million/888
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No. of Recommendations: 0
I wanted to short $2 Jan 21 puts, they were going for $.65; For me that is a low risk, high annual return scenario. IB blocked me and only partially that trade went through on E*Trade and they also blocked subsequently. Slap 100% margin requirement, I am okay with that, that would be still 30 cents on dollar risked. I expect GameStop is not going to see that price within the year.
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No. of Recommendations: 1
Look, Robinhood is leading the trading revolution, they introduced $0 commission and everyone followed suit. The retail investors loved that platform, RH brought so many people into stock investing, so, they have a reputation and street cred to protect, they squandered it today.
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No. of Recommendations: 6
And the casino has opened for the day... time to put that hard earned stimmy to work.



9:30 AM : $250
10:00 AM : $460
11:30 AM : $115
12:00 PM : $300
2:00 PM : $250
2:10 PM : $490 (never use market orders!!)
2:15 PM : $237
4:00 PM : $193 (market close)
---
9:30 AM : $376 (casino open)
10:00 AM : $315


tecmo
...
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No. of Recommendations: 0
Are you watching only?

I once went to Baden-Baden, famous German Casino in the Blackforest (ok, not as Monte Carlo), with my best suit on and with 50 Deutschmark "play money". Betting always 5 DM on the roulette table they lasted for 1/2h or so and it was much more fun than watching only.
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No. of Recommendations: 0

And the casino has opened for the day... time to put that hard earned stimmy to work.

9:30 AM : $250
10:00 AM : $460
11:30 AM : $115
12:00 PM : $300
2:00 PM : $250
2:10 PM : $490 (never use market orders!!)
2:15 PM : $237
4:00 PM : $193 (market close)
---
9:30 AM : $376 (casino open)
10:00 AM : $315


When I logged into my broker's web site this morning, I got the following notice:

Market Volatility

In the interest of helping to mitigate risk, we have put restrictions in place on certain securities. Restrictions may include actions like increasing margin requirements or limiting certain types of transactions in the current market conditions. For the latest list of impacted stocks, visit tdameritrade.com/restricted.
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No. of Recommendations: 6
I am starting to make a list of the chapters that will included in the Michael Lewis book (that is probably already 1/2 written).

Chapters
- Negative Oil Prices
- Hertz
- Tesla
- Bitcoin
- Social Media (with a tie into the election and Wallstreet Bets)
- Robinhood
- Game Stop

Did I miss any so far?

tecmo
...
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No. of Recommendations: 4
Chapters
- Negative Oil Prices
- Hertz
- Tesla
- Bitcoin
- Social Media (with a tie into the election and Wallstreet Bets)
- Robinhood
- Game Stop

Did I miss any so far?



Nice list. Gosh, I forgot about the negative oil prices. How time flies!

Here's one:
I was pretty impressed that about a third of the world's entire stock of bonds was trading at negative yields.
(and much more than a third, if you consider real yield).
But maybe that's too tame....it wasn't REALLY impressive till some junk rated bonds started trading at negative yields, and not just those about to be redeemed at par.
A while ago that seemingly nonsensical situation applied to about 2% of all European junk bonds.

Jim
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No. of Recommendations: 19
The Gamestop retail investors vs large shop short sellers situation has been seen many times before. An interview of Bill Miller quoted him as saying he reads the book "Reminiscences of a Stock Operator" (first published in 1923) every two years. I wish I had read that book twenty years ago as it would have given me valuable insights on how the system operates.

Here is my example how I learned the hard way in 2003. I prudently (or so I thought), put in a stop loss order on a holding. I literally got bounced out of the holding in a short sellers move. Worse still, the bounce was so quick and deep it did not sell at the specified price, rather it sold for substantially lower than the specified action setting. The price received in this deep momentary bounce was essentially at my original investment price). Later in the day the stock was selling for its opening price, a valuation that was 50% higher than my original investment. I rebought the stock and ultimately made 2X. Knowing all the while that brief bounce cost me another 2X.

As a long term holding value investor I never use stop loss orders. Period. The algorithm shops, the retail mob, the professional traders and all the rest of the world have their advantaged angles. My sole advantage is to hold and hold and hold companies that can be held and held and held.
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No. of Recommendations: 11
As a long term holding value investor I never use stop loss orders.

Very sage advice.
This is the reason: when your price is triggered, it becomes a market order.
You have agreed contractually in advance to sell at whatever the bid is that moment, no matter how low.

Therefore it falls into the category of "never EVER use a market order".
It's like taping a "kick me" sign to your back.

Jim
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No. of Recommendations: 2
when your price is triggered, it becomes a market order.

There are apparently stop-limit orders, where the stop triggers a limit order. IB describes it near the end of this page:
https://www.interactivebrokers.com/en/index.php?f=609

I still wouldn't use them. Too easy to imagine scenarios where it works against you even with a limit in place.

Rob
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No. of Recommendations: 0
it wasn't REALLY impressive till some junk rated bonds started trading at negative yields,

Greece! They are not investment grade and had negative yield. Argentina's 100 year bond issuance also qualifies a chapter
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No. of Recommendations: 0
"I wanted to short $2 Jan 21 puts, they were going for $.65; For me that is a low risk, high annual return scenario. IB blocked me and only partially that trade went through on E*Trade and they also blocked subsequently. Slap 100% margin requirement, I am okay with that, that would be still 30 cents on dollar risked. I expect GameStop is not going to see that price within the year."

I am assuming that is a typo in your expiration date but it looks like ibkr removed the restriction in the afternoon (it was in place in the morning - I checked). The prices are slightly less attractive than what you saw but not bad at all.

I agree that the risk of it going below 2 is quite low so I shorted a bunch of Jan 2023 2 strike puts for 0.63, Jan 2022 2 strike puts for 0.40 and Jan 2022 1 strike puts for 0.18.

I wonder if there has been any other 300 dollar stock where somebody has been willing to buy a 1 strike put option from you for as much as 0.18. The skew is insane!
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No. of Recommendations: 0
what are your thoughts on stop-limit orders?

if the stop is set far enough above the limit, the odds are that you will execute close to the stop price most of the time, since the sale will execute at the "limit or better". in an unusually turbulent market, you still have a pretty good cushion.

for example: if one were to purchase a stock at 10 dollars and it rises to 20, setting a stop at 15 and a limit at 11 would probably work 99 percent of the time. most likely the sale would occur very close to 15.

of course in the above example, the safe bet would be to sell half at 20 and just let the rest ride.

best,

mike
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No. of Recommendations: 0
How funny is this? I might be mistaken but isn't this the Berkshire board? With us discussing since last year more and more our options?

Options about GEM (bought some today, but sold them again as this game is too crazy for me (made $70+$100 profit on that roundtrip, not bad for a few exciting hours)), options about a stock who should not be named (just bought puts again) etc. On the Berkshire Hathaway board, omg!!!

If this is not a sign that the end is nigh, what else? :-)
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No. of Recommendations: 0
I wonder if there has been any other 300 dollar stock where somebody has been willing to buy a 1 strike put option from you for as much as 0.18. The skew is insane!

Normally I interpret Put premiums as the cost of insurance for someone who owns the stock. Whether or not that is the reason for buying the put -- it gives the premium some context. But to pay .18 so you only lose 299.18 and not 300.00 that's nuts!
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No. of Recommendations: 0
Yes, I meant 2022, still getting used to the new year :)

I have shorted $2 puts for Feb, March, April and Jan 22 expiration. I just hope Goldman or one of the firms approach GME and do a private offering of 5 million shares at $200, and allowing GME to raise $1 B and simultaneously short the stock on the market so that the IB's make money, GME has $1 B war chest and screw everyone.

I am sure there will be law suits, but if they do this only to accredited investors and GME, IB can walk a fine line and pull this, that would be interesting.

In any case, I expect GME to raise some money in this and basically the company finished the year above $2. But I may close the 2022 puts lot earlier, and let my Feb, March, April expire. In any case, I have sold around 500 contracts, so even if the put premium drop by 30% or 40%, my annualized returns would be fantastic.
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Normally I interpret Put premiums as the cost of insurance for someone who owns the stock.

Or one could simply just own less of the stock in the first place. OK, OK, that's too rednecky for Wall Street. :)
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No. of Recommendations: 1
Normally I interpret Put premiums as the cost of insurance for someone who owns the stock.

Or one could simply just own less of the stock in the first place.


They are not same. I want to own 1000 shares of XYZ corp, but there is a legislation or some event that introduces significant risk, and we want to mitigate that risk, so we want to buy puts.
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No. of Recommendations: 0
Chapters
- Negative Oil Prices
- Hertz
- Tesla
- Bitcoin
- Social Media (with a tie into the election and Wallstreet Bets)
- Robinhood
- Game Stop


Here is an ancient one circa 2018-2019 (BC): BLOCKCHAIN!
Remember Long Island Iced Tea?
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No. of Recommendations: 0
Or one could simply just own less of the stock in the first place. OK, OK, that's too rednecky for Wall Street. :)

No. Read about put-call parity (a misnomer but Wall St guys are not a literate bunch).

stock + put = bond + call.
So buying a put converts your stock position into a call, roughly. Less downside risk, unlimited upside.
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No. of Recommendations: 12
what are your thoughts on stop-limit orders?

My own view:

They completely solve the problem of normal limit orders, which is that they turn into market orders which are very dangerous.
But they kind of defeat the idea of a stop order.
You don't know if it will fill.
The times you want it to have filled, it won't.
So... I don't really see the point of them.

Rather counterintuitively, I find it's better to watch the stock yourself, and decide at any given time.
Or set an alarm, which many brokers allow, so you know when to watch.
Then you can decide at the time.

Or, use a fancy order.
If price X is touched, sell with a limit of X-k.

Personally I just watch the prices.
And not all that often, either...wild excursions are pretty rare.
Most times (not always) missing a big price move is dangerous only if you own something you shouldn't.
e.g., something wildly priced.

Jim
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No. of Recommendations: 2
Most times (not always) missing a big price move is dangerous only if you own something you shouldn't.

Most times (not always) missing a big price move is dangerous only if you own something you shouldn't.

There is so much wisdom in this. Many (not all) bored pandemic day traders are going to learn this one the hard. Again...

This would also fit in a fortune cookie!
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No. of Recommendations: 0
In my opinion, stop orders are stupid. If the price goes down, that should make the stock a better value. Stock prices can drop for many reasons that have nothing to do with the underlying fundamentals.

That said, I don't do bubbles, not even on the short side. I buy because the fundamentals make me bullish. I don't buy to play games with the short sellers.
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No. of Recommendations: 0
I have learned, through painful experience, to put in "alerts" at points I used to put in stop loss orders.

9 times out of 10, the alert gets triggered in the first hour of trading and within an hour of the alert the stock is back up several %.
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No. of Recommendations: 0
Normally I interpret Put premiums as the cost of insurance for someone who owns the stock.

Or one could simply just own less of the stock in the first place. OK, OK, that's too rednecky for Wall Street. :)


Selling the stock is equivalent to buying a put whos expiry is the time you sell and whos strike is the price you sold at. So owning less of the stock is one end in terms of expiry and one end in terms of strike price of all your other options, er, choices of expiry/strike.

Nerdy,
R:)
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No. of Recommendations: 1
* Do we really believe that they were more shares short than exist? Colour me dubious.
Sounds more like a flaw in the way the short percent was calculated.
(Unless you count short derivatives, of course, but the link said shares)
Among other things, it would be wildly and visibly illegal.


Not illegal at all. The essence of a legal short is the stock has to be timely delivered to the buyer. Which is trivial if you sell stock you own but requires an owner to borrow from if you sell stock you don't own.

Consider a share and this history:
T1: owned by A
T2: loaned to B who sells it to C. Needs to be delivered by T2+3 to C unless C sells it or loans it out first.
T3: loaned to D who sells it to E. Needs to be delivered by T3+3 to E unless E sells it or loans it out first.

So here we have a share which has been loaned out twice and if E hangs on to it, only E needs to have the share deliered to her.

We have a 200% short ratio. And all required deliveries are made.

I'm a nerd,
R:)
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No. of Recommendations: 9
Not illegal at all. The essence of a legal short is the stock has to be timely delivered to the buyer.
Which is trivial if you sell stock you own but requires an owner to borrow from if you sell stock you don't own.


No, it's more than that.
It's not the process you described at all.
In the US you can't just promise a future delivery, you have to have your hands on shares to short.
You have to have secured the specific share loan before selling the stock short.

There are hiccups in this process due to failed borrows like failed trade settlements, but it's down in the rounding error and can normally be ignored.
It happens, but it's definitely not the main event.
99% of short trades (the SEC's figure) cleared properly even before the practice was made illegal, and even back then another 0.85% cleared late but correctly within two weeks.

Can shares sold short exceed shares outstanding?
Yes, in theory, because stock can be rehypothecated.
You borrow shares from Alex to sell short. Bill is the buyer, and Bill's broker lends the stock to Charlie so Charlie can go short as well.
Thus the number of short shares exceeds the number of shares owned by Alex.
But this is normally a relatively small fraction of the total short count.

Some material rehypothecation presumably happened here despite the explicit efforts of the Reddit bros to prevent it.
But absent relending, any short count in excess of shares outstanding is unlawful.
You don't go short by making a promise to deliver--you go short buy successfully borrowing some shares, THEN selling them.

The FT reports that around 80% of GME shares outstanding (not just float) were sold short.
They wonder why any seemingly bright hedge fund manager would sit in such a risky crowded trade.
I guess those hedge fund managers now have a better appreciation of the risk of a squeeze.
What interests me is how many of those hedgies themselves have "diamond hands"...if they kept their
positions and the share price falls back, their shorts might yet turn out to have been profitable.

Jim
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No. of Recommendations: 1
Mungo:
No, it's more than that.
It's not the process you described at all.
In the US you can't just promise a future delivery, you have to have your hands on shares to short.
You have to have secured the specific share loan before selling the stock short.


Rule 203(b)(1) and (2) – Locate Requirement. Regulation SHO requires a broker-dealer to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order in any equity security.[7] This “locate” must be made and documented prior to effecting the short sale. https://www.sec.gov/investor/pubs/regsho.htm

So in the example I gave above, each short seller can arrange to borrow the security in time to settle his short sale with the previous owner, because the previous owner expects delivery of the shares and will be able to deliver them immediately to the shortseller in time for the short seller to deliver them. Reg 203 makes it clear the metric of nakedness is not delivering shares by delivery date and having no documented plan to do so.

So I humbly submit the sequence by which a single shared is loaned out by 2 people for shorting resulting in a 200% short to long ratio on that share is completely consistent with legal shorting.

I would further claim that if you see a 128% short to outstanding ratio and it persists for months, all shorters have settled their sales, the shares are sitting in the hands of the final buyer who did not sell them, and there are more than 2x as many shares "outstanding" held by people who loaned them out that have IOUs instead of share certificates. And all is right with the world and nobody who should have a share delivered to them is missing a share.

Further, to the extent the redittors buy buying their shares in margin accounts don't tie up a single share no matter how diamond their hands are. If someone closes their short position by buying shares to return to the lender, the lender will virtually certainly immediately lend them out to somebody else who wants to short them. If this was an attractive short before the price ran up, it is an even more attractive short now. I would bet that the short ratio of GME was not reduced by this little shindig, and the new shorts are making way more money than the old shorts hoped to make.

Indeed, Andrew Left reports he got out of his short at $90 on the way up. I can't think of a reason in the world he wouldn't get back into the short at $90 on the way down, and take a net loss on the whole GME shindig of, lets see, carry the 2, move the decimal point, uhm, $0.

R:)
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No. of Recommendations: 8
Rule 203(b)(1) and (2) – Locate Requirement. Regulation SHO requires a broker-dealer to have
reasonable grounds to believe that the security can be borrowed so that it can be delivered on the
date delivery is due before effecting a short sale order in any equity security.[7] This “locate”
must be made and documented prior to effecting the short sale. https://www.sec.gov/investor/pubs/regsho.htm


So in the example I gave above, each short seller can arrange to borrow the security in time to settle his short sale with the previous owner, because the previous owner expects delivery of the shares and will be able to deliver them immediately to the shortseller in time for the short seller to deliver them. Reg 203 makes it clear the metric of nakedness is not delivering shares by delivery date and having no documented plan to do so.


If you don't have the shares identified, you can't initiate the short sale.
They executing broker can't agree to l end you shares at the moment of settlement if those shares unless he knows they will
He can't know that if someone else is short them today, or at any time between today and the moment of settlement.

But yes, there is a distinction between trade date and settlement date.
Presumably there are situations that a broker can't borrow a share NOW, but knows of a share that he can delivery in a couple of days.

So, yes, this situation is presumably possible:
A guy was short a given block of shares.
He closed the short yesterday.
That "buy to close" trade is waiting to settle.
Those shares could be lent to you today to take effect on your settlement day (but not before), as the broker knows that the shares will be available then.

But unlike your summary which said "We have a 200% short ratio. And all required deliveries are
made. ",

in this specific situation there is no day that a given share is short by two people because of settlement lag.
So settlement delay does not allow opportunities for synthetic shares to come into being, nor for the short count to exceed the number of shares lent.

As far as I know, that can happen only with rehypothecation.
i.e., you borrow a share, sell it short to a buyer, whose broker then lends it to a third person to sell short.
Two loans of the same share, meaning three people long and two short, total net one long as before the trades.
This comes from lending out shares that were purchased from someone who had themselves borrowed them, not from gaming the settlement time.

That's my understanding, anyway.

As others have pointed out, the thing most often forgotten is that the number of people short any given security can not increase any faster than the number of people long.
If a stock has a 40% short ratio, it axiomatically has a 140% long ratio because the number of shares in existence hasn't changed.


Further, to the extent the redittors buy buying their shares in margin accounts don't tie up a single share no matter how diamond their hands are.

No...
Using margin means you borrowed the money to buy the share, it has nothing to do with the borrowing the share or how the share is delivered.
For a broker to execute a trade for your share purchase, no matter how you fund it, they have to
source that share from someone who owns it and is willing to sell and deliver it free and clear on the settlement date.
That might occasionally be the broker, but only if they themselves have the share to sell you.
The broker could borrow the share to sell to you, going short themselves in the process, but again they have to secure a share loan to do that, like anybody else.
Every trade has a counterparty.
For every incremental holder of a share short, there is for the exact same date interval precisely one incremental holder long.

Jim
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Thanks, Jim, for persisting. Part of the fun of a board like this is learning things, and the details of short selling involve learning some details of share ownership and it is cool to know.

Some of the things I have learned include the below. Your previous responses lead me to do more reading. For example, on margin accounts at a brokerage, there is nothing intrinsic about a margin account that says the brokerage can loan out your shares, but the terms you agree with your broker when you get a margin account often give the brokerage permission to loan out your shares whether you realized you agreed to that or not.

So I think most or all of these things are true, If you do want to correct a few, I promise I'll give you the last word, I think I'm done for now.

* Ownership of a share you have bought starts immediately. But you don't get your share certificate for up to 3 days.

* At a shallow level, an illegal naked short is when you sell a share and don't deliver a certificate for that share to the buyer. This is usually because you didn't bother actually borrowing a share to sell.

* In a bit more detail, an illegal naked short is when you sell a share that you don't own without having a documented plan for borrowing that share in time to send it to the buyer by settlement date.

* you cannot have a share that you own loaned out by your broker without agreeing. However, it is fairly typical that when you signed agreements for a margin account (if that is what you have), you agreed to allow your broker to lend out your shares that it holds in street name.

* There are some number of shares outstanding, call that 100%. Outstanding means these are the shares that have been officially issued by the company. It is one of these 100% that must be delivered within 3 days after a share is sold.

* When you loan your shares out for short selling, you deliver the certificates to the person you loaned them too and receive an IOU in their place. When the person you loaned the shares too gives them back, they do not give you back the shares you loaned them, those have been sold to someone else, but they give you back the same number of different shares. It would be like loaning someone your car and they sell your car but go out and buy an identical car to give back to your.

* Out in the world, there is some total number of shares owned which is at least 100%, but higher if there are are also shorts. If there are N% shares owned, there are exactly (N-100)% shares short. Among the owners, many own the 100% outstanding shares, but the other (N-100)% of shares owned are certified, effectively, by the IOUs from the people who were loaned the shares to short them.

* N can be arbitrarily high theoretically, but only rarely rises above 100% in practice. When short count does rise above 100%, it means that at least some shares have been loaned out 2X or more. That is, a particular share may have been sold by a short seller to someone who then lends it out to a second short seller.

* This is NOT naked shorting: the last buyer gets the certificate, the two people who loaned the shares out for the two short sales get IOUs for the share they loaned out, and the two short seller who sold the share are the counterparties on the IOUs for the loaned out shares.

* It doesn't really matter whether the sale took place over a few days and the certificate passed through each owner's hands before moving on to the next, or the transactions all took place in less than 3 days in which case the only certificate that has to be delivered is to the last buyer who presumably keeps ownership for more than 3 days. Ownership of a share passes immediately upon a sale, that share can be sold or loaned out before the new owner gets the certificate. The new owner will give the certificate to whoever bought or borrowed the share from him when he gets the certificate.

* When longs are driving the selling, prices tend to go down, not because there are less buyers, but because there have to be an equal number of buyers as sellers, and moving the price down is the only way to increase the number of buyers to match the longs who want to sell. Similarly buyers are driving the market, the price tends to go up not because there are more buyers than sellers, but because the price needs to rise to create enough sellers to match the buyers.

* Synthetic stock can be created from options. A brief investigation with a snapshot of options chain shows that the bid on a synthetic share tends to be a bit higher than current stock price and the ask on a synthetic share tends to be a bit lower than the current price. If this were not true there would be arbitrage opportunities for traders to make money. These opportunities essentially do not exist because the Market Makers in options hedge the options, which essentially consists of their exploiting all the arbitrage opportunities. Recall that retail buyers pay the bid but get the ask, while the market maker pays the ask and gets the bid, and makes money on the spread.

* The existence of the options market doesn't change much of the above. In an important and simple sense, the sum total of all options are net zero of effective shares. This is trivially proved: every option has a writer and a buyer, and the exposure in shares (delta weighted for example) is exactly opposite for the writer and buyer of each particular option. So summed over all options, the delta is 0, the outstanding value of all options adds to an amount which does not change at all as the stock price rises and falls.

* Looked at in terms of long and short interest, in a delta sense, one can sum up the deltas of all the calls long and all the puts short and that is the long interest expressed in shares carried in outstanding options. The same sum negated is the short interest expressed in shares carried in outstanding options. The long and the short are balanced exactly as above because every option has a writer and a buyer that have exactly opposite. But the presence of oustanding options does increase the total amount long and the total amount short.
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I think this is almost all correct. Except for 2 points:

* Ownership of a share you have bought starts immediately. But you don't get your share certificate for up to 3 days.


First, no one gets a share certificate any more. More important, you are not really an owner until the trade clears, in 2 days (not 3). You won’t get a dividend, you can’t vote. You are committed to becoming an owner when it clears, just like you are committed to becoming the owner of a house when you finalize the contract, but you don’t legally own the house (or the share) until the closing date.


If there are N% shares owned, there are exactly (N-100)% shares short. Among the owners, many own the 100% outstanding shares, but the other (N-100)% of shares owned are certified, effectively, by the IOUs from the people who were loaned the shares to short them.

* N can be arbitrarily high theoretically, but only rarely rises above 100% in practice. When short count does rise above 100%, it means that at least some shares have been loaned out 2X or more. That is, a particular share may have been sold by a short seller to someone who then lends it out to a second short seller



Just to use N consistently, I think you mean N rarely rises above 200%, i.e. the short count is usually less than 100%. But as you correctly say, there is nothing illegal about a daisy chain of buying and lending out shares, so for a given share, you could have 5 people who think they are long (and are long) and 4 who are short. If this happened with all shares, you would have N=500%.

Who gets the dividend then? Five people per share, with 4 getting the dividend from the short seller. Who gets to vote their shares? Hmm, I guess only the last guy in the chain; the four others are treated like owners, but only the 5th guy in the daisy chain really is an owner.

dtb
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-* you cannot have a share that you own loaned out by your broker without agreeing. However, it is fairly typical that when you signed agreements for a margin account (if that is what you have), you agreed to allow your broker to lend out your shares that it holds in street name.

1.) Quite a few companies do not even issue share certificates.

2.) AFAIK, brokers no longer hold certificates "in street name." Almost all shares are cleared through the Depository Transfer and Clearing Corporation (DTCC) as beneficial owner of the certificates in the name of Cede and Company. So the registered shareholder is Cede and Company and DTCC is the beneficial owner of those shares. Your broker has a beneficial ownership of the beneficial ownership of the certificates the DTCC has, your broker has beneficial ownership of the beneficial ownership of the DTCC's beneficial .... (you get the idea)? Talk about derivatives!

All this works out pretty efficiently provided the DTCC's computers are fast enough to keep up even with high frequency traders, and never make mistakes. And the vaults of Cede and Company never get flooded out during Storm Sandy, and after the vaults are pumped out that a fire does not start. What could possibly go wrong?

https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...

https://en.wikipedia.org/wiki/Cede_and_Company

https://www.investmentnews.com/stock-bond-certificates-in-va...
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