$54,000 into $48 millionI have nothing to add.
What is going on is Amazing, GME shorts only way out it seems, GME issuing new shares, which they buy and close their short book. If the WSB/ REDDIT group is unwilling to sell or unwilling to sell anything less than $500, imagine how badly it is going to hurt.
And why would GME accommodate them? They tried to bankrupt them. If I was CEO I'd issue share at 600$ if they want them
Shorting a stock is not the same as trying to bankrupt a company.It may overlap with WANTING the company you've shorted to go bust, but wanting something and trying to bring it about are obviously very different things.Especially in situations that one of those is legal (the wanting) and the other frequently isn't (the trying).Jim
And why would GME accommodate them? They tried to bankrupt them. If I was CEO I'd issue share at 600$ if they want them I hear you. But, if I am CEO, my responsibility is to take advantage of the situation and raise $1 or $2 Billion. You need to set aside your emotions and just look at this as an opportunity to raise capital at extreme valuation.
Shorting a stock is not the same as trying to bankrupt a company. In general, yes. IN this particular instance, the shorts have "manufactured" shares, to the extend institutional holdings are 140% of outstanding shares. The shorts have tried to bankrupt the company, luckily the company had enough cash.These kind of sever short attack have forced other companies to seek bankruptcy protection, because their suppliers, vendors are worried about doing business with them or change the terms etc. It happened.This is not your regular, run of the mill shorting.
In general, yes. IN this particular instance, the shorts have "manufactured" shares, to the extend institutional holdings are 140% of outstanding shares. The shorts have tried to bankrupt the company, luckily the company had enough cash.The company was and is not insolvent, and has not been trying to issue shares - on the contrary, they repurchased shares as recently as the fourth quarter 2019, and reduced share count in 2019 by a whopping 37% (at $5/share!). The company obviously thought it had plenty of cash pretty quite recently, and if the share price was short-term depressed because of hedge funds' short sales, that low share price has allowed the company to reduce the share count very cheaply and thus provided enormous benefit to ongoing shareholders.The company's major problem is not shorts, it is that they sell games in physical stores, a business that is being replaced by online gaming. It is true that the company was heavily shorted, for good reason. The shorts are like vultures that are circling above a man dying of thirst in the desert - the birds didn't cause his trouble, it is his trouble that has made them come.dtb
Their online sales have reached $1B+ TTM run rate.
I hear you. But, if I am CEO, my responsibility is to take advantage of the situation and raise $1 or $2 Billion. You need to set aside your emotions and just look at this as an opportunity to raise capital at extreme valuation.Have you looked at GME's annual? Last year's annual shows that there were 3 million stock options outstanding, all with trivial strikes (eg, $15, $20 or $25). Some of those options have vested, some will vest over the coming year, and some will be a bit farther down the road.So, if you were actually the CEO, would you fulfill your fiduciary duty to shareholders and attempt to opportunistically raise $2B of money that GME doesn't actually need, or would you take care of your own personal interest? Seriously, of the 3 million options, how many do you think were awarded to the CEO? Maybe 300k or 500k (I haven't actually checked)? If I were the CEO and my personal wealth suddenly sky-rocketed, I wouldn't be in any hurry to issue new shares until I had exercised my options and dumped the shares. And then, I'd be taking a hard look at the vesting dates for my remaining unvested options, and I'd light a candle every night to pray that the squeeze lasts long enough for them to vest.SJ
First of all, those options $15, $20, $25 are 3x, 4x, 5x of the average share price, prices at which they bought back the shares. So these very extremely high hurdle. Think of it, for Berky'B like $750,$1000, $1250. So you understand the hurdle.Now, by raising the billions the CEO can make sure the stock price is going to be above $10, $15, $20. If not this thing could get back to $5.
Some things about GME and this thread.The volume of the stock on 1/13 was 3X the number of outstanding shares! The average ownership of a share of GME that day was about 2 hours, averaged across the entire share base. So this fantasy that a group of redditors could, or did, buy up the shares and "lock them up" by not selling just aint so. However, the implication is that the redditors and their ilk did buy the company 3X during the day! The price didn't even rise much on 1/13, so there was plenty of short-side action. Presumably as the redditors bought their calls, the market-makers (mm) bought shares and as the share price rose a little (compared to later rises) bunches of traders bought those calls from the mm so that the mm stayed neutral and did not have to buy enough shares to raise the price on the market. Presumably the mm spent the day at high speed buying shares when the redditors outnumbered the call purchasers and selling them when the call purchasers attracted by the higher premiums outnumberd the redditors. I don't know how fast, on what time scale the mm buy and sell shares to hedge neutral, but I would bet it is about as fast as their computer trading will let them, possibly faster than 1 second, certainly faster than 1 minute. The volume of the stock traded eventually reached about 19X the total outstanding shares of the company over something like the next 10 days. So the average ownership of a share of GME was ~4 hours for that period. Presumably this was redditors overwhelming the traders on the short side, essentially showing so much demand that the mm had to hedge by buying more shares that drove up the price of shares, and essentially until the share price rise drove the options premiums high enough, the traders on the short side were afraid to take up the volume. The market can stay irrational longer than you can stay solvent, and an in the money high priced call is a terrible than to own when it expires in the money. So the redditors eventually, after battling short side volume that literally equals the long side volume (every sale has a purchase and vice versa), drove the stock price up so that the call prices would be driven up enough to attract traders to sell the calls short, taking the hedging pressure off the mm. Some other observations:Yeah if GME could have they should have issued shares. It is accretive to value for a company to issue shares for more than they are worth. With at least 19x the outstanding shares turned over, if GME could have "diluted" their share count by a factor of 10x at an average price of only 2.2X intrinsic value (IV), they could have doubled the IV <per share> of the company. And the company would now be 20X the size it was before the debacle. The things they could have done! Maybe gone into insurance...Fortunately GME did have options outstanding on its shares, and the holders of those options could certainly reap some of this whirlwind if they were paying attention. But the suggestion that the C-suite wouldn't do a secondary offering because they wouldn't want to not line their own pockets by cashing in their own options seems wrong to me. They'd be sitting in the C-suite of a company 20X the size it was a month earlier. If they can't figure out how to make money doing that, then, well, they could figure out how to make money being executives of a 20X bigger company. At no point did any of this reduce the net short interest in the company. The volume of shares traded was at least 19X outstanding share volume. I say at least because to the extent that options trades were coming in on both the long and short side, the volume of shares is just an indicator of the net imbalance between long and short interest, the total long and total short interest was presumably many times the outstanding shares of the GME. And everytime the shares traded hands, there was someone adding to their long position and someone on the other side of the trade adding to their short position. If you eliminated short selling, you would change very close to NOTHING. at 128% of outstanding shares short interest, you are looking at maybe 10% of the true total short interest in the company, which are made up of all the people who are long puts and short calls. Someone would have to go through and sum up the outstanding contracts of all the puts and calls, and weight them by their deltas to estimate the true total short and long interest at any given time. And the net of long and short interest would average something like the outstanding shares. Remember, every time somebody shorts a real share, they sell that share to someone. Except for temporary imbalances due to the 3 days allowed to deliver shares, there is always net one more person that thinks they own a share than their are shorts outstanding on the share. When I loan my share to a shorter and they sell it short, there are now 2 of us who think we own the share and one of us who think we are short that share. At the moment having thought about this, I suspect short interest is a completely meaningless and useless metric, that it must be swamped by options volume. It is possible with options to build synthetic stock, and if you do this you will see that the prices of the synthetic stock are pretty close to the price of the actual stock, and you can short or long this synthetic stock without having to worry about any 3 days to deliver limitations. In some sense, the fact that people short real stock vs synthetic is because it must be slightly cheaper to short real stock rather than synthetic. OK I have drifted off into the weeds. Have a nice day.R:}
at 128% of outstanding shares short interest, you are looking at maybe 10% of the true total short interest in the company, which are made up of all the people who are long puts and short calls What is your basis for the above statement? If trust short is only 10%, then borrow would not have spiked and as the price raised there were 90% longs would have happily cashed in at $100, $200, $300.
Fortunately GME did have options outstanding on its shares, and the holders of those options could certainly reap some of this whirlwind if they were paying attention.They are probably in a blackout period and have gotten 0 out of this whole thing to date. Apparently their fiscal quarter ended in Jan, almost all companies black out 15 days before until the earnings are announced. Sometimes Managers and below can sell, sometimes its everyone blacked out. Since they report earnings in March, it is possible they could come away with nothing for the whole fiasco. They probably should have quit on the spot and cashed out already. Since it is retail I would not expect a lot of options outstanding anyway.That part of it is sorta sad.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |