(1) @RudyHavenstein The GameStop/RobinHood issue in a nutshell: First, on Robinhood, the issue was one of undercapitalization (i.e., RobinHood did nothing wrong). So… when the volatility on GME at Robinhood picked up, as happens at any clearing house in stock that becomes...
(2) very volatile, the DTCC asked RobinHood for more margin to trade the stock (i.e., more money, or a margin call); RobinHood didn’t have the money, so all trading in the stock (both buying and shorting) was suspended; because selling the...
(3) ... stock doesn’t require more risk from RobinHood, this was allowed to continue. This happens all the time, and is perfectly NORMAL!
On shorting, and what happened with GME, first it’s important to remember that naked shorting was made illegal in 2009; thus, every...
On shorting, and what happened with GME, first it’s important to remember that naked shorting was made illegal in 2009; thus, every...
(4) ... time a share is sold short, on the other side of that trade is a synthetic share that is created long which is not included in Bloomberg’s 140% short interest calculation (they only include the float; not the synthetic float – so in reality, if Bloomberg has...
(5) ... 140% of a stock short, it’s really [140% ÷ [140% + 100%] = 58.3% short]).
Why did GME Spike? The market spikes are driven by the Fed money pouring into markets ($4bn/day) as well as stimulus money by Congress to kids at home who have nothing to do but trade;...
Why did GME Spike? The market spikes are driven by the Fed money pouring into markets ($4bn/day) as well as stimulus money by Congress to kids at home who have nothing to do but trade;...
(6) ... and, this is exacerbated by the interbank lending rate from the Fed falling to effectively 0% 10/19 (for no good reason), which made options writing/lending free from everyone (Fidelity + Robinhood + Citadel + etc.); this has created an explosion in the amount...
(7) ... of options offered by every, to include Robinhood, and because the writers of the options must buy stock when they write call options (i.e., gamma hedge), which creates more float inorganically, anyone who understands this can find a heavily shorted stock, get a...
(8) ... bunch of guys to buy call options, and cause a massive short squeeze (see TSLA all last year). So, if you find a heavily shorted stock, and start attacking it with call options, it will cause a short squeeze and an inorganic explosion in...
(9) ... the shares. This WILL happen again! The key is, the Fed bringing down the cost of options writing to effectively nothing for the first time ever (this is market manipulation), which inorganically allows aggressive options buyers target heavily shorted stocks and...
(10) ... cause a short squeeze (this is happening DAILY in the markets – see TSLA). Nothing in the hearings today addressed this, so it will happen again, and again, and again until either: (a) the Fed increases the rate to write options, or (b) Congress...
(11) ... shuts down the ability of anyone to play in the options market. Warren Buffet called derivatives “financial weapons of mass destruction." Options are derivatives.
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