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Now let’s say C lends to D, who shorts in the market. So the number of shares that people have in their accounts is 120, but there’s 20 shares of short interest. It will only add up if you take the short interest = 20 shares. That adds up to 120! But the company only issued 100 shares! If there are a 100 shares outstanding and let’s say the promoters have 80 and I have 20, then I lend those 20 to B, who sells them.
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(You can do this in India too, but it’s limited) The “borrow” costs money but you’ll bet that you make more after the fall than the cost of borrowing. That’s how you profit from a down move – you sell first (borrowing someone else’s shares) and then buy back from the market later. In America, you can borrow shares and short them. The thing no one seems to care about: According to this WSJ article, Melvin’s put options have since expired. WallStreetBets decided Melvin was going to be the fall guy, and they further piled on to the stock. Technically, therefore, Melvin won’t lose more than $55 million on those puts. I will pay a premium per share for this one sided bet, and that premium is the amount I stand to lose. The idea of buying puts is that when you know a stock will fall, you might say look, if it goes up I don’t want to lose money, but if it goes down I want to make money. Put options are bets that a stock will fall below a certain price, by a certain time. The value of these put options was $55 million – not a big percentage of the Melvin fund (less than 1%) but this formed a trigger for the move up as well. A typical short position need not make any attention, but Melvin had bought a large number of “put” options, which have to be disclosed. Melvin runs $12 billion and one of the bets it took was that the GME shares would drop in value. One of them is Melvin Capital, run by Gabe Plotkin, who used to work with Steve Cohen at SAC Capital (a now infamous hedge fund). The 100% short interest in GMEĪ certain set of hedge funds are short $GME. That user has regularly been posting screenshots of his account which shows the meteoric rise, and obviously the 2 million users that make up WallStreetBets want in on the action.Īnd obviously there’s the little other factor that certain people are short this stock big time. This is the kind of thing that can make entire lifestyles change. And he’s probably booked more than $2 million out already. One such user named deepf***ingvalue, had put in a legendary $50K bet on GME in options.
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People started to discuss this stock as a candidate for the next big trade – the “YOLO” (You Only Live Once) bets that can make or break people’s lives. On a reddit forum called /r/wallstreetbets, something was indeed cooking. This would be good, but a rise from $18 at the end of 2020, to $111+ on Jan 26 is a little too much to fathom. You just have to be in awe of the US Market)Īnyhow, the point is that Gamestop was in a crappy business, and according to this excellent note by Matt Levine, Gamestop has been gaining interest because Ryan Cohen, the founder of Chewy, Inc (a pet food retailer that’s incredibly successful) has bought nearly 13% of the company, wants it to go bigger online, and has recently been added to their board of directors. (Which is quite remarkable, because with those revenues, it would be bigger than DMART in revenues alone – and all it does is sell games. Gamestop, listed as ticker GME in the US, has recently lost $275 million (Trailing 12 months) on revenues of $5 billion or so. Which has been a problem, because people are increasingly buying games online. Gamestop is a retailer that sells video games. The brilliance of the internet to organize a crowd in ways that were otherwise only used by big banks and funds.A retailer that might have just found a way to make back its lost days.A couple of large hedge funds that like to go short./r/wallstreetbets, a reddit group that, well, places bets on stocks.Gamestop shares have climbed to $148 yesterday after being at $18 on January 1, 2021.