wat (the original explanation of this rolling clown fiesta)
OK, listen up, you late-to-the-party, crayon-eating homunculus, here's what's going on:
Over the past year, hedge fund supervillains have made money by selling shares of Gamestop they don't actually own
- they've just borrowed them. Short selling. If they sell enough they can drive the price down so far that when
they eventually need to return the shares they borrowed, they can get them cheap. It's free money. They throw a
couple hundred mil at this, chill in their offices watching live video feeds of homeless people being
exsanguinated on the hoods of their vintage sports cars, write up an investor report, and call it a fiscal year.
They borrowed and sold a record amount - they sold more shares, in fact, than are actually traded, far more than
Gamestop's float: 140% more shares than were traded on any given day. Essentially, they
were simultaneously betting on Gamestop going bankrupt and doing their best to drive them into bankruptcy. It's a
good tactic when you need to find a way to pay for your old wife's alimony and your new wife's poolboy.
But it presents an opportunity for the savvy degenerate gambler. Because these shares eventually need to be
returned - after all, it does cost these funds money to borrow a share. And the higher the price goes, the more
it becomes, the more it costs to borrow. This means that at some point, they need to buy back those borrowed
All 140% of them.
So our visionary gambler, if they were to invest in Gamestop, would have a guaranteed buyer for their shares. And
if millions of fellow degenerates were to ask their mother for an advance on their allowance so that they could
buy Gamestop, too -
And then, if famous e-commerce CEO Ryan Cohen were to buy a ton of Gamestop shares, join the board, and announce they're
going to be a big company again by doing internet things and esports and radical new stuff -
And then, if a truly insane amount of call option buying - don't worry about it if you don't know - were to force
market makers to rapidly buy up a ton of shares to fulfill all those options they sold in a wild phenomenon called
a gamma squeeze that's basically the stock equivalent of an atmospheric microburst, suddenly spiking Gamestop's
price to unheard-of levels -
- hang on, I need a new pair of pants -
Well then you'd have the perfect conditions for a short squeeze. The price is insanely high. There's a whole
street of funds with deep pockets who absolutely must find a way to buy all those insanely expensive shares. And
by buying them - 140% of the amount traded! - they're going to drive up the price even more. So one day, a fund
will run out of money paying interest on their borrowed shares, and they'll have to drive GME's price through the
buying enough shares to give
them back. And as the price climbs, other short holders are going to be required to cover their borrowed shares by
buying them. It's a runaway reaction where the more it happens, the more it happens. You know, one of those cute
little phenomena like virus spread. Or nuclear bombs.
So who are they buying from? That's right. At what price are they buying? Well, that depends.
Hedge fund managers holding GME shorts would really, really like to convince GME stock holders to sell them some
shares right now, before it climbs any higher, so that they can return the shares they borrowed and get out before
they get steamrolled into bankrupcy. And they've got lots of tools at their disposal to do this: they can pump up
other stocks to create FOMO, causing GME holders to sell their shares to go chase some shiny new meme. They can
hire PR companies to astroturf these stocks on Elon Musk fan clubs and gambling forums. They can buy up shares and
then, after trading hours are over, sell them in progressively cheaper tranches to drive down the stock price.
They can wipe the hobo blood off their wattle and go cry on television about how they're being bullied.
They can use the reprieve granted by two-bit brokerages too poor to meet clearninghouse fees to unload their short position. They have,
in fact, tried all of these things. But it hasn't worked - GME's price is higher than ever. It's out of control,
now - there are too many people involved. There are other institutions involved, trying to extract maximum profit
out of the shorts. The meme has reached critical mass.
Now it's a classic million-player prisoner's dilemma: every GME holder has visions of selling their shares for
unlimited chicken tendies and cocaine dipping sauce. Maybe they think they alone can sell, while everyone else can
continue to drive the price up by holding. But if every degenerate gambler thought this way, and sold their
shares, very quickly the short squeeze wouldn't happen. Short holders would buy up all the shares being sold at a
painful but manageable loss, they would cover their position, and the nuke would never be detonated.
What's a prisoner in this dilemma to do? At last, the point arrives. To avoid selling too early, the savvy
degenerate gambler would wait until short interest - the amount of shares shorted out there - started to decline
substantially. As long as nobody was defecting, nobody selling early, that decline in shares shorted would come
with a spike in the price of the stock, as the few shares available are bought at astronomical prices. And this
decline in shares shorted would distinguish this spike from gamma squeezes or regular old stock run-ups.
Then and only then, as the nuke goes off, the stock price ascends past Alpha Centauri, and the short interest
finally starts declining, the short squeeze has begun. And then it's every gambler for themself.