I think the T+2, T+1 settlement discussion is a red herring. What people are really upset about is a lack of accountability and transparency in trading, especially around short selling.
I really don't understand why FTDs are allowed. Seems like they just add systemic risk in order to enable shorts to manipulate the market more easily. Can't think of a reason why that is desirable unless the goal is to fleece retail investors.
Why not just force the BD to buy at market price to ensure delivery?
I'm not the right person to ask, I'm not very finance knowledgeable. But here would be my demands, starting with most likely to possibly happen:
- Total short interest in every stock updated daily, both settled and in progress.
- (edit) report daily fails to deliver (not just a running total), and published at T+2 rather than every couple weeks.
- For every trade, publish whether it's a short sale or sale of an owned asset.
- SEC tracks each companies' daily borrows and fails to deliver, with consequences.
- Every short sale must be submitted with a borrow agreement from someone who has already agreed to lend you the shares. SEC checks these are not fraudulent or frequently cancelled.
- Everyone should have access to the trading data that you currently need a Bloomberg terminal for.
- Every share has a serial number. Every trade must include a list of serial numbers of every share in that trade, with proof that you own or were lent those exact shares.
If I could add, reddit has a ton of conspiracy theories floating around about this stuff, e.g. "shorts haven't covered because X". They're very hard to refute or even investigate as a layperson because I cannot find the data or it's not published at all. So this lack of transparency doesn't just tilt the playing field, it allows misinformation to spread more easily.
Oh, I thought of another (not exactly transparency):
- If you lend out your shares, you can't "sell" them until you've recalled them and had them delivered to you.
If the float is X, then there shouldn't be more than X shares available to sell at any given time. In the current system shorting increases apparent supply which devalues the stock.
We could start with reporting periods shorter than a month, so that naked shorting is more visible from the public data. GameStop shares stood at over 170% of float for several months, and though that's ridiculously high it's not enough information to trigger an SEC investigation.
Who made those accusations, and what evidence did you see?
I've only seen those accusations on reddit and twitter. The only "evidence" I've ever seen in support of those accusations is repeated citation of short interest. Short interest is an aggregate figure which doesn't track specific firms, so it can't be used to discover if an individual fund closed or opened a short position.
Random redditors, and they were quoted by CNBC and the like
The post I replied to asked what people are demanding. They are demanding that institutions not lie to manipulate the market. I am not claiming this lying ever took place.
> The only "evidence" I've ever seen in support of those accusations is repeated citation of short interest.
In addition to that, they claimed that volume in GME was not high enough for the shorts to be closed. I'm not familiar enough with the markets to know what I don't know here though.
Well there's the evidence that any firm short at $20 would have been dead if they didn't get out before $200. I'm only aware of one firm that went bankrupt, and it wasn't Melvin or another major fund.
Put yourself in the firm's position and think about this from a game theoretic perspective...what is the upside in lying? The thinking is that you might convince people to lay off the voracious buying if you make it seem like the short squeeze isn't possible because you're out? That seems like a stretch and would require navigating lots of wild assumptions about why this almost unprecedented price action is happening.
On the other hand, there is tons of downside. If the plan doesn't work and the price continues its meteoric rise, you're bankrupt. If you're caught lying, you're additionally hit with securities fraud. Then the veil is pierced and the partners are at risk of losing their money. On top of this if your investors are savvy they'll sue you for breaking fiduciary duty because you didn't close out a position that makes selling naked SPY calls look safe. This also puts the partners' private capital at risk.
It would be cartoonishly dumb to lie about closing the position instead of actually doing it.
Their AUM was around $13B at the beginning of the year. They were short at $20. As was reported, they lost about 53% of that, call it $6B, as GME rose from $20 to $100, which is when they said they closed out. Their AUM wouldn't be able to survive $100 - $200 given their losses going from $20 - $100.
I always thought that is something that the Blockchain would be able to solve. Am I too crazy to thing that the stock exchange would work better on a Blockchain?
Retail traders can't swing that kind of volume in the underlying shares, no. But retail call buying as a proportion of total equity options volume is up massively in the past two years. The trading leverage inherent to retail call options herding together combined with the requirement for market makers to hedge the options they sell induces these huge movements. From there, momentum traders exacerbate the spark that's already lit.
That is false. $16.8B is greater than Melvin's AUM at the start of the year. The person in that video doesn't substantiate their claim either.
As a more general aside: take everything said on Cramer's show with a grain of salt. He is a deeply unserious character in the financial space. His angle is to be provocative, not accurate.
Do you have a citation you can offer up with more solid loss numbers? It looks like Melvin alone has lost at least $4.5 billion dollars on the GME short trade, and Citadel/Point72 provided ~$2.75 billion in capital to Melvin.
> Short-selling hedge funds have suffered a mark-to-market loss of $19.75 billion year to date in the brick-and-mortar video game retailer GameStop, according to data from S3 Partners.
Doesn't attribute losses to specific firms, but the damage is spectacular.
oh i get it, i thought you were saying the losses werent possible because it exceed their available captial. youre actually saying the losses arent possible because theyd be out of business.
not necessarily - typical failed spin cycle usually tries spin+fud at level 10, when that fails, retrench to level 9, acknowledging some points with their own new spin and fake surprise at 'learning something new', lather, rinse, repeat. Same thing when you call out a compulsive liar in real life. I have 0% doubt that many of the comments in these threads are calling exactly this out.
update: literally 1st pair of comments i read in WSB on this one is:
"Lol Cramer is such a great actor. “What?! Seriously?!” What a douche"
"Is he okay? He was looking off camera so frequently I thought maybe they are holding his wife hostage there or something.
Cramer, buddy, blink twice if we should call the cops."
Many of them probably do, but I strongly doubt they're doing a ton of trading after hours. For one thing, the people all excited about gamestop have been talking about it at $40-50 / share, so why would they suddenly all jump in at $150? For another, I read (but don't know how to verify) that after-hours volume was much higher. Doesn't seem likely that retail was much of a factor.
Robinhood only allows you to trade for an hour into after hours. WeBull, another retail platform, and I believe thinkorswim (TDA's offering) allows you to trade the full after hours length of time which ends at 8pm EST.
edit: These are the only 3 platforms I have experience with, there are certainly others.
Confirming that TD/TOS let's me make trades as GTC_EXT. Good till Closed, Extended Hours (it's till 2000h New York time) and early morning. For gamblers this is like: "hard ways, always working"
"reddit" being the chatty ones on wsb. Certainly don't claim it from what they write
Of course it could be that nobody posting on reddit has a single share, and all the screenshots are just virtual profiles on various accounts, but if we're assuming what people on reddit are saying is broadly true then that's the case
> Gamestop went from 90 to 140 overnight in late/early trading - when retail on reddit are locked out.
Retail can buy/sell call options overnight.
The Bloomberg opinion article states:
> Yesterday someone bought thousands of GameStop call options with an $800 strike price expiring tomorrow. They cost 87 cents per share. If the stock closes above $800 tomorrow those options will pay out; also though all notions of money and value and human society will be rendered meaningless, so I don’t know what you’ll do with your payout.
That hypothetical person YOLOing $100,000+ could very easily be a retail investor throwing away money for the lulz. Maybe someone who won big a few months ago and feels fine throwing their excess money away.
Open interest declines if someone closes positions.
Open interest increases if someone opens a position.
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Open Interest is well over 10,000 on $800 GME expiring tomorrow. So __somebody__ bought-to-open call options at $800. (I presume the sell-to-open side of that call option is just the Market Maker who happened to close that deal, taking the free money).
This is well over $1-million USD being YOLO'd onto an outrageous bet (that GME is going to be over $800 tomorrow at 4:30pm).
In any case, my point is that retail is absolutely allowed to trade options overnight. Just because stock market is closed doesn't mean that the options-market is closed. The options-market is 24/7.
> Yesterday someone bought thousands of GameStop call options with an $800 strike price expiring tomorrow. They cost 87 cents per share. If the stock closes above $800 tomorrow those options will pay out; also though all notions of money and value and human society will be rendered meaningless, so I don’t know what you’ll do with your payout.
> Fun fact, the Bloomberg options value calculator tells me that the delta of that $800-strike call option expiring tomorrow is zero. That is, the right theoretical hedge for a market maker who sells that option is to do nothing, to buy zero shares to hedge against the minuscule risk of the stock going to $800. Standard options math, and also frankly common sense, tells you that if the stock is trading at $40 or $90 or whatever, and someone comes to you and asks to buy a two-day option struck at $800, the proper reaction is to say “lol okay sure pal,” take their money and never think about it again. But I’m sure people bought other options that market makers did hedge, why not. We’ve discussed some recent research finding that options positioning predicts late-in-the-day trading moves, and I suppose the shape of yesterday’s late-afternoon rally could be partially explained by options.
I hope if anything, this Gamestop saga has turned a lot of people onto Matt Levine's writing. He consistently puts out some of the most laugh-out-loud hilarious things I will read every day, in a way that is actually able to concisely explain really complex subjects. And he cranks out one of these every single day. I am simply in awe of him.
His writing is really entertaining and informative. But I have to disagree with this. The point of hedging is risk management. If something really weird and unexpected is happening, basing decisions on a standard options value calculator seems like a terrible idea.
Also, you have to decide: do you think this was a stupid (retail) investor or a smart (institutional) one? If stupid, how do they have a few million dollars to blow on a bet like this? If smart, might they have some plan, like they think they can trigger a squeeze of some kind? This all just raises so many questions for me.
He knows (Matt Levine always knows), and addresses that very fact in a footnote:
> To be clear, market makers are not required to do what the model tells them, and the “common sense” answer is perhaps ambiguous. Arguably the fact that someone bought thousands of these options means that the probability of them paying off is a bit higher than the model suggests. If you are selling way-way-way-out-of-the-money options, you probably should not be blindly following your model. Here is a story I likefrom Nassim Nicholas Taleb.
Ah, missed that, thanks. One thing I dislike about this sort of conversational writing is "Here's a very strong claim that I want you to believe[1]" "[1] footnote refuting that claim, but you should still believe it".
> To be clear, market makers are not required to do what the model tells them, and the “common sense” answer is perhaps ambiguous. Arguably the fact that someone bought thousands of these options means that the probability of them paying off is a bit higher than the model suggests. If you are selling way-way-way-out-of-the-money options, you probably should not be blindly following your model. Here is a story [https://twitter.com/matt_levine/status/555913245589250048] I like from Nassim Nicholas Taleb.
The March 19th calls are at 500% volatility. I couldn't help it, I sold a few contracts of the 200 strike. The trading activity was wacky, every time I joined the option offer I got lifted within a minute.
I do not encourage anyone else to do the same. My risk tolerances are different from yours.
God forbid people be allowed to invest their money the way they want. Maybe we should also ban lottery tickets. Also we should make gambling illegal in Vegas. I hear alcohol, cigarettes, and other vices are also bad for people.
You're right, there are uninformed people buying into the hype. But who are you to tell them how to spend their money? Why are you such an authority on their autonomy?
I understand your perspective. I apologize if I come across as abrasive. I think (admittedly I could be wrong) many people with your perspective are subconsciously taking a holier-than-thou approach though, which can come across as a bit condescending.
But you're right. Chances are a lot of people are going to lose money investing in something they don't understand, including people who can't afford to lose that money. But I genuinely believe most of the people are actually aware of the risks, even if they aren't intimately familiar with the market.
I know it sounds crazy, but a significant chunk of people doing this genuinely don't care about the money. As to what the breakdown is between people trying to profit, people that have no idea what they're doing, and people that just want to fuck the system? I don't know, but I bet each category has at least 10% in it.
Shame on Gamestop management for not doing a secondary offering. Tesla did this a few times in the past 18 months to raise like $10-12 billion dollars.
It's not clear if they can do an offering at inflated prices without running afoul of SEC.
Even if they did it's unclear if it would be enough to end the situation because the shorts clearly think GME is on a one way road to bankruptcy. After initial short positions were unwound new shorts entered when the stock was flying super high so short interest naturally remains high.
GME already has a decent pile of cash on the books (which is why attracted Burry in the first place) so it's also not clear if a secondary offering would do much to dissuade the shorts from re-entering their positions after using the offering to cover.
> It's not clear if they can do an offering at inflated prices without running afoul of SEC.
To add to this, the SEC issued a statement in the middle of it all that seems to discourage Gamestop from offering more shares. It's unclear to me but that's my interpretation of the last sentence of this paragraph:
> In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity. *Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.*
How quickly can you do that / react to these things.
Could you 'beat' / get the shares sold before the price dropped dramatically?
And let's assume you get them sold / what happens when you just dumped bunch of shares out there and the inevitable price crashes? What value can you ever provide those share holders?
But in the first place I kinda wonder if just trying to cash in would trigger the drop...
They can do an 'at-the-market' offering. Which allows them to sell XX number of shares at whatever price and whenever they choose to. This is the approach that Tesla took.
A recent Reuters story claimed they couldn't issue shares without releasing preliminary earnings data per SEC regs. Apparently, they had too much data on the previous quarter. They chose not to release the prelim earnings. I wonder if this has anything to do with the CFO being ousted.
--Stock options are standardized contracts so it doesn't need to be the same buyer.
--Call options cannot be exercised (this would be requesting the shares) until the stock price exceeds the strike price. American options can be exercised at any time, European options can only be exercised at expiry.
--It's typically better to sell an American option rather than exercise early. Options have "intrinsic" and "extrinsic" value. The intrinsic value is what you get when you exercise. Simplifying a bit of messiness away, if your strike price is $30 and the stock is at $50 then by exercising and selling the shares you net $20. But the option at the same time will sell for more than $20. Thus by exercising early, you leave extrinsic value on the table. The time-to-expiry aspect is a significant portion of an option's extrinsic value.
Options are standardised contracts. You only have to find someone willing to sell, it doesn't have to be the original buyer. And, most options traders do not actually want to exercise the options; they simply want the cash. It is much easier to sell the contract a day or two before delivery than to come up with cash to buy the shares only to turn around and sell them again.
Yeah, but there won't be many other options to buy at this price. The idea is the squeeze, right? You buy a lot of options. You prop up the price of the underlying asset and refuse to sell. It's not a typical situation.
I worry that eventually the major investment firms and banks will demand that in order to buy or sell securities you must have a license, and only a licensed securities trader is able to do that. It would be horrible for the day traders and companies like E*Trade but it’s possible.
That's pretty hard to imagine. The whole point of a publicly traded company is that the public can trade it; investment firms can (and many do) stick to private markets if they don't want to deal with that.
According to [1], HFs are shorting ETFs with GME shares because there aren't any more shares to borrow. Shorting the etfs drops the price and causes them to liquidate some positions, this however, suggests to me that this is a hail Mary because any liquidation is not necessarily done on GME shares. In-fact, owning GME shares at this point is a hedge against the market. If anything, this actually causes some correction in the market.
