Thread by @TylerTaggart1

There is more to the $GME squeeze than just hedge funds over shorting the stock. It also has to do with option flow (and who it is that normally SELLS call options)

But first you need to know some basics (then you can #EatTheRich by beating them at their own game)

Thread

First, you need to understand what a Call Option is.

A call option is a contract that you can pay for that gives you the right (but not the obligation) to buy 100 shares of a stock at a certain price by a certain date, no matter what the actual price of the stock is by that date

Buying a call option has a cost associated with it, and while anyone call sell a call option (if they own 100 shares of the underlying asset aka the stock), it is NORMALLY done by big groups like Citadel. They are the ones who sell the vast majority of option contracts.

When they sell you an option contract, they are supposed to purchase 100 shares of the underlying security in order to "cover" the position. That way, if $GME goes from $25 to $250 over a few months, and you have a call option that lets you buy $GME at $30, they actually . . .

have the shares to sell you at the agreed upon price (in this example, $30).

If you have a contract that lets you buy 100 shares of $GME at $30, and $GME is trading at $250, that contract is worth AT LEAST $220 x 100 or $22,000 (because each contract is for 100 shares)

But on the flip side, if you buy a Call option and the price of the stock goes down, and is lower than the agreed upon price of your contract, the contract will expire worthless.

Here is where it gets interesting.

It is possible for SOME people (aka Citadel) to sell you . . .

a call option WITHOUT buying the underlying stock to secure the position. This is called naked call selling. This can be VERY costly when the naked call selling goes against Citadel. Because now, Citadel (or whoever sold call options without owning $GME first) is under CONTRACT

To sell 100 shares of $GME to whoever holds these contracts at the agreed upon price (probably lots of contracts between $40 and $150 that are deeeepd ITM)

BUT Citadel DOESN'T HAVE THOSE SHARES. And in fact, THERE AREN'T ENOUGH SHARES OF $GME TO COVER EVERY CONTRACT

This puts Citadel in deep shit. They now have to buy up a TON of shares at $200+ in order to fill these contracts that they sold. Which is why they are so desperate for the price of $GME to drop.

This is also true of $AMC, $BB, and a lot of the other heavily shorted stocks that have been going wild.

Naked call selling is a way that companies like Citadel make a TON of money. Because they never have to back up the call with the shares. Until they do.

This is where the "float" comes into play. Shares float = the number of shares that are available on the public market.

$GME has just over 50M shares in it's public float.

Take 50M and divide it by 100, and that gives you the number of contracts that SHOULD be able to be sold.

So in the case of $GME, 5 million option contracts would theoretically control the ENTIRE FLOAT of $GME

So let's take a look at how many in the money call options have been sold for $GME:

For THIS WEEK expiration ALONE, there are over 73,000 call options that are DEEP in the money. This represents 7.3M shares of $GME, which has a total float of 50M shares.

In other words, this is about 15% of the float.

If you keep going out week by week on the expiration, it becomes clear that FAR TOO MANY call options were sold. Citadel (and others) got GREEEDY

And now they are paying for it because they are under contract to provide $GME shares for $40 and $50 and $100 to tens of thousands

of investors who own these call option contracts. But Citadel DOESN'T HAVE THE SHARES. Because all of the shares are locked up buy "those dumb retail investors"

It. Is. Beautiful.

correction - 500,000 contracts. not 5 m