Author Topic: Is this how the hedge funds screwed up their GME play?  (Read 2069 times)

bwall

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Is this how the hedge funds screwed up their GME play?
« on: January 28, 2021, 05:52:21 AM »
(besides shorting 140% of the float, without which none of this would be possible.)

GME closed Friday, Jan. 22 at $64. The top strike price on Jan. 22 was $40 ? (IIRC), which meant that all those who sold naked calls were then either liquidated or had just discovered they opened a short position. Any covered calls were merely called away.

On Monday the Jan. 29 expiration had a top strike price of $115. The stock quickly elevated to $155 before closing at $76. So, any new, adventuresome (reckless?), naked call sellers at the $115 strike were relieved after a bit of a scare. Shorts were (presumably) happy to cover by buying calls.

Tuesday, Jan. 26 the top strike price was expanded to $200, giving shorts an opportunity to hedge at a much higher price and call covered writers a chance to lock in big gains. The stock closed at $148. Elon Musk tweeted "Gamestonk" after hours and the price soared over $220. Most shorts probably did not sleep well Tuesday evening. With good, reason, because,

on Wednesday, Jan. 27 the stock opened over $300, the top strike on Jan. 29 expiration was expanded to $320. The stock stayed above $300 for most of the day, before closing at $347. After hours the stock dropped to around $300.

Thursday morning, pre-open, the stock is trading close to $500 with over 3 million shares trading hands already. Top strike price is still $320.

Thanks for reading so far, I'm almost to the question!

Open interest on the calls is about 100,000 contracts, across all expirations, down slightly from the day before. These 100,000 contracts represent about 10m shares of GME, all of which I expect to expire in the money. If these are covered calls then they are simply called away. GME has a float of 50m shares, so 10m shares represent 20% of the float.

If they were naked calls, then wouldn't they be forced to cover in the open market?

What is the likelihood that a substantial portion of these 100,000 open call contracts (20% of the float) are naked calls written by shorts who face obliteration on Friday if the contracts expire in the money?

marty998

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #1 on: January 28, 2021, 06:18:21 AM »
If it is to be the market makers that are left holding the baby when all the calls are exercised, Id expect they have a certain amount of insurance to cover operational loss or risk incidents.

The question is whether that insurance coverage is sufficient.

If there are punters out there with open short positions, then its simply a question of how long you can stay solvent. Recent history has shown that length of time could be a matter of minutes.

I expect when I awake tomorrow well be well past the To Da Moon and Mars stage.

Thought and prayers to the hedge fund vampires who have manipulated the markets for far too long.

 

helloyou

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #2 on: January 28, 2021, 07:01:36 AM »
If it is to be the market makers that are left holding the baby when all the calls are exercised, Id expect they have a certain amount of insurance to cover operational loss or risk incidents.

The question is whether that insurance coverage is sufficient.

If there are punters out there with open short positions, then its simply a question of how long you can stay solvent. Recent history has shown that length of time could be a matter of minutes.

I expect when I awake tomorrow well be well past the To Da Moon and Mars stage.

Thought and prayers to the hedge fund vampires who have manipulated the markets for far too long.

Isn't option exercise the ability to buy the stock at lower price then sell to pocket profit?

So the market maker shouldn't be holding the bag, they are just buying the stock just in case it really goes much higher they won't be at loss. Once exercised, the stock purchased by the market maker will belong to the option trader.

Did I understood it wrong?

MustacheAndaHalf

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #3 on: January 28, 2021, 08:59:36 AM »
Open interest on the calls is about 100,000 contracts, across all expirations, down slightly from the day before.
I roughly scanned the call options expiring tomorrow (2021-01-29), and it looks like that expiration has 100k contracts by itself.  Looking at the most popular strike prices ($320.. $200.. $115.. $100..) I could 45k contracts there, alone.
https://finance.yahoo.com/quote/GME/options?date=1611878400&p=GME

I'm not sure all the numbers make sense, though.  Could call options with a strike of $34 really be traded 4,565 times in a day... and only 6 of them are still owned?

I think all call option contracts have the same rules regardless of who holds them - that's why they can be bought and sold easily.  Which means market makers, like everyone else, have 2 days to come up with the securities per the contract.
https://en.wikipedia.org/wiki/Exercise_(options)#Settlement

There's 11,000 contracts at the $100 strike price.  I don't know the premium the market maker was paid for those contracts, but thats 1.1 million shares at $100/sh on a stock worth $264/sh now.  On that one slice of the market, the market makers have a $180 million dollar loss...  they are probably suffering less than those who went short.   Short sellers... who went short at $20/sh have a 1200% loss.. Owch.

ctuser1

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #4 on: January 28, 2021, 09:50:04 AM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

 

bacchi

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #5 on: January 28, 2021, 09:56:48 AM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

Yes, physically settled. If you're long and ITM, you'll end up with +100 shares.

ctuser1

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #6 on: January 28, 2021, 10:22:48 AM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

Yes, physically settled. If you're long and ITM, you'll end up with +100 shares.

Huh, then the > 100% short guys are REALLY screwed!

I was thinking it's all financially settled and that they will just lose some money. If they can't come up with the securities to settle then multiple heads should roll - including the brokers that allowed this. There must have been some massive risk management failures somewhere, I work at a broker and we have MANY MANY controls in place to prevent such exposures from ever happening.

It will be interesting to read the post-mortem 5 years down.

bacchi

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #7 on: January 28, 2021, 11:29:43 AM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

Yes, physically settled. If you're long and ITM, you'll end up with +100 shares.

Huh, then the > 100% short guys are REALLY screwed!

I was thinking it's all financially settled and that they will just lose some money. If they can't come up with the securities to settle then multiple heads should roll - including the brokers that allowed this. There must have been some massive risk management failures somewhere, I work at a broker and we have MANY MANY controls in place to prevent such exposures from ever happening.

It will be interesting to read the post-mortem 5 years down.

I think the institutional shorts are already out and Melvin covered earlier this week when volume was 3x the float. Unless someone has daily short interest from the 15th, there's no reason to believe it's still really high (>50%) regardless of what everyone on r/WSB is claiming.


mizzourah2006

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #8 on: January 28, 2021, 11:53:35 AM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

Yes, physically settled. If you're long and ITM, you'll end up with +100 shares.

Huh, then the > 100% short guys are REALLY screwed!

I was thinking it's all financially settled and that they will just lose some money. If they can't come up with the securities to settle then multiple heads should roll - including the brokers that allowed this. There must have been some massive risk management failures somewhere, I work at a broker and we have MANY MANY controls in place to prevent such exposures from ever happening.

It will be interesting to read the post-mortem 5 years down.

I think the institutional shorts are already out and Melvin covered earlier this week when volume was 3x the float. Unless someone has daily short interest from the 15th, there's no reason to believe it's still really high (>50%) regardless of what everyone on r/WSB is claiming.

I think they are out of their original short positions, but someone is taking large short positions at these higher numbers. You can see it play out on Level 2. There are literally walls of 50-60k shares by one person. I think the hedge funds let it run to almost $500 to take out a huge short position and ladder the share price back down to where we are now. Then they put up huge walls at $250/$300, etc. to keep it down and with many retail trading options not allowing buys they can keep the buy side down. This was coordinated for them to cover their bad short positions and take short positions that are much more likely to prove good investments. I think they're playing both sides of this trade now. Watch all of places like Robinhood, Ally, and IBKR come out tonight and say that the decision they made was to protect you from yourself, but given the demand they will remove restrictions then everything booms tomorrow and the hedge funds are clear of their bad shorts and get to play both sides.
« Last Edit: January 28, 2021, 11:55:41 AM by mizzourah2006 »

bacchi

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #9 on: January 28, 2021, 12:10:23 PM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

Yes, physically settled. If you're long and ITM, you'll end up with +100 shares.

Huh, then the > 100% short guys are REALLY screwed!

I was thinking it's all financially settled and that they will just lose some money. If they can't come up with the securities to settle then multiple heads should roll - including the brokers that allowed this. There must have been some massive risk management failures somewhere, I work at a broker and we have MANY MANY controls in place to prevent such exposures from ever happening.

It will be interesting to read the post-mortem 5 years down.

I think the institutional shorts are already out and Melvin covered earlier this week when volume was 3x the float. Unless someone has daily short interest from the 15th, there's no reason to believe it's still really high (>50%) regardless of what everyone on r/WSB is claiming.

I think they are out of their original short positions, but someone is taking large short positions at these higher numbers. You can see it play out on Level 2. There are literally walls of 50-60k shares by one person. I think the hedge funds let it run to almost $500 to take out a huge short position and ladder the share price back down to where we are now. Then they put up huge walls at $250/$300, etc. to keep it down and with many retail trading options not allowing buys they can keep the buy side down. This was coordinated for them to cover their bad short positions and take short positions that are much more likely to prove good investments. I think they're playing both sides of this trade now. Watch all of places like Robinhood, Ally, and IBKR come out tonight and say that the decision they made was to protect you from yourself, but given the demand they will remove restrictions then everything booms tomorrow and the hedge funds are clear of their bad shorts and get to play both sides.

Couldn't those walls simply be the whales selling their shares without causing an immediate and massive drop? It could be Chewy taking advantage of the run up. Or it could be Gamestop, who filed to sell new shares before this all started.

There is definitely something funny going on with the retail speculator ban.

mizzourah2006

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #10 on: January 28, 2021, 12:18:05 PM »
(Never dabbled into the options market myself for my personal portfolio, n00b question)

Are all options on GME physically settled? If they are financially settled, then a bunch of these short squeeze issues would go away - isn't it?

Yes, physically settled. If you're long and ITM, you'll end up with +100 shares.

Huh, then the > 100% short guys are REALLY screwed!

I was thinking it's all financially settled and that they will just lose some money. If they can't come up with the securities to settle then multiple heads should roll - including the brokers that allowed this. There must have been some massive risk management failures somewhere, I work at a broker and we have MANY MANY controls in place to prevent such exposures from ever happening.

It will be interesting to read the post-mortem 5 years down.

I think the institutional shorts are already out and Melvin covered earlier this week when volume was 3x the float. Unless someone has daily short interest from the 15th, there's no reason to believe it's still really high (>50%) regardless of what everyone on r/WSB is claiming.

I think they are out of their original short positions, but someone is taking large short positions at these higher numbers. You can see it play out on Level 2. There are literally walls of 50-60k shares by one person. I think the hedge funds let it run to almost $500 to take out a huge short position and ladder the share price back down to where we are now. Then they put up huge walls at $250/$300, etc. to keep it down and with many retail trading options not allowing buys they can keep the buy side down. This was coordinated for them to cover their bad short positions and take short positions that are much more likely to prove good investments. I think they're playing both sides of this trade now. Watch all of places like Robinhood, Ally, and IBKR come out tonight and say that the decision they made was to protect you from yourself, but given the demand they will remove restrictions then everything booms tomorrow and the hedge funds are clear of their bad shorts and get to play both sides.

Couldn't those walls simply be the whales selling their shares without causing an immediate and massive drop? It could be Chewy taking advantage of the run up. Or it could be Gamestop, who filed to sell new shares before this all started.

There is definitely something funny going on with the retail speculator ban.

Sure it's possible. These is clearly hearsay, but not some rando on Twitter:

https://twitter.com/justinkan/status/1354861746897346560?s=20


bwall

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #11 on: January 28, 2021, 04:09:20 PM »
OMG! What a wild ride today.

I'd heard that Citadel had loaned money to Melvin Capital, one of the major shorts (edit: now re-named Melvin Lowercase). They also pay Robinhood for their data feed, thus making the trading free, right? It would be nice if someone here had a way to confirm that.

My suspicion, with zero proof, is that they saw the wall of buyers incoming pre-market and put the screws to robinhood to shut down trading. Otherwise, they'd be losing billions. Billions.

I think the real winners are going to be lawyers.

I'm still holding. I'm gonna ride GME all the way to Valhalla.

blue_green_sparks

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #12 on: January 28, 2021, 04:25:12 PM »
OMG! What a wild ride today.

I'd heard that Citadel had loaned money to Melvin Capital, one of the major shorts (edit: now re-named Melvin Lowercase). They also pay Robinhood for their data feed, thus making the trading free, right? It would be nice if someone here had a way to confirm that.

My suspicion, with zero proof, is that they saw the wall of buyers incoming pre-market and put the screws to robinhood to shut down trading. Otherwise, they'd be losing billions. Billions.

I think the real winners are going to be lawyers.

I'm still holding. I'm gonna ride GME all the way to Valhalla.
When the pension was replaced by the 401K, it seemed like a good idea at the time, LOL. Good Luck !

mizzourah2006

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #13 on: January 28, 2021, 05:43:39 PM »
OMG! What a wild ride today.

I'd heard that Citadel had loaned money to Melvin Capital, one of the major shorts (edit: now re-named Melvin Lowercase). They also pay Robinhood for their data feed, thus making the trading free, right? It would be nice if someone here had a way to confirm that.

My suspicion, with zero proof, is that they saw the wall of buyers incoming pre-market and put the screws to robinhood to shut down trading. Otherwise, they'd be losing billions. Billions.

I think the real winners are going to be lawyers.

I'm still holding. I'm gonna ride GME all the way to Valhalla.

They don't make some money from Citadel, it's their primary source of revenue. It's also why so many were saying remove your stop losses, because that's part of the order flow. So they knew exactly where they had to get on their laddered shorts to trigger a stop loss tidal wave.

I'm riding with you!  To Valhalla!!!

https://fortune.com/2020/07/08/robinhood-makes-millions-selling-your-stock-trades-is-that-so-wrong/
« Last Edit: January 28, 2021, 05:46:21 PM by mizzourah2006 »

bwall

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #14 on: January 29, 2021, 07:05:18 AM »
Volume yesterday (Thursday) was the lowest all week; 56m shares changing hands. This is a big drop from a few days earlier.  Monday and Tuesday the volume was around 170m on each day. Wednesday it dropped to 95m or so.

By my rough count, this morning there are about 90,000 open contracts, representing 9 million shares or 18% of the float, across up to the $320 strike price at today's expiration. Top strike price is now $650. It looks like some options traders took advantage of yesterdays drop in price from $350 to $190 to close out positions. This seems to have been very wise for a short seller since in pre-market GME is back above $350 $375 with over 3.5m shares already changing hands.

If volume today is similar to the day before, around 50m or so, then I think it's going to be a wild ride all day and on Monday, with 18% of the float in open options interest. Buckle up!

MustacheAndaHalf

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #15 on: January 29, 2021, 08:44:06 AM »
bwall - Yesterday both Robinhood and InteractiveBrokers halted client buying of GameStop, which meant some clients unable to trade who wanted to buy.  After hours, facing a big backlash from their own customers, they relented to allow buying GME stock again.  So you have pent up demand from yesterday being lumped in with today's buying.

I bought 11 shares yesterday, and placed limit sell for today... I now have 100% of my money back, plus 22%, plus 3 free shares.  :)  All my limit orders triggered except the $500/sh ... I will be entertained if it reaches that point.

Some of the drama unfolds Monday and Tuesday: when call options are exercised, there's a 2 day settlement period.  So Mon/Tue is when all those shares have to be bought on the open market.  On the flip side, some new investors might have put everything in call options... they need cash to exercise those options.  (They could sell some call options for cash, then use cash to exercise the other call options)

bacchi

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #16 on: January 29, 2021, 09:22:28 AM »
Some of the drama unfolds Monday and Tuesday: when call options are exercised, there's a 2 day settlement period.  So Mon/Tue is when all those shares have to be bought on the open market. 

Or the shorts could've closed their short calls and gone neutral. The market makers are then left holding the bag, if they're exposed, but they don't have to sell their shares immediately. They could hold them as additional hedge against the Feb/Mar calls.

mizzourah2006

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #17 on: January 29, 2021, 11:40:03 AM »
Some of the drama unfolds Monday and Tuesday: when call options are exercised, there's a 2 day settlement period.  So Mon/Tue is when all those shares have to be bought on the open market. 

Or the shorts could've closed their short calls and gone neutral. The market makers are then left holding the bag, if they're exposed, but they don't have to sell their shares immediately. They could hold them as additional hedge against the Feb/Mar calls.

This is my biggest concern, that the fact that brokers restricted the buy side (and technically still are) allowed many of the shorts to cover at much lower share prices than they would have otherwise had to and now they are mostly out of their short position and the prices will be driven up by calls and retail investors thinking they are "winning" a battle in a war they already lost. Then all the talking heads will be able to say..."See we told you so...it was always going to be you little guys that got hurt here".

bacchi

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #18 on: January 29, 2021, 11:43:53 AM »
Some of the drama unfolds Monday and Tuesday: when call options are exercised, there's a 2 day settlement period.  So Mon/Tue is when all those shares have to be bought on the open market. 

Or the shorts could've closed their short calls and gone neutral. The market makers are then left holding the bag, if they're exposed, but they don't have to sell their shares immediately. They could hold them as additional hedge against the Feb/Mar calls.

This is my biggest concern, that the fact that brokers restricted the buy side (and technically still are) allowed many of the shorts to cover at much lower share prices than they would have otherwise had to and now they are mostly out of their short position and the prices will be driven up by calls and retail investors thinking they are "winning" a battle in a war they already lost. Then all the talking heads will be able to say..."See we told you so...it was always going to be you little guys that got hurt here".

Right, good analysis. The BSDs have already wrapped this up. With a bloody nose, probably, but they've left the ring.

MustacheAndaHalf

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #19 on: January 29, 2021, 12:25:50 PM »
Some of the drama unfolds Monday and Tuesday: when call options are exercised, there's a 2 day settlement period.  So Mon/Tue is when all those shares have to be bought on the open market. 
Or the shorts could've closed their short calls and gone neutral. The market makers are then left holding the bag, if they're exposed, but they don't have to sell their shares immediately. They could hold them as additional hedge against the Feb/Mar calls.
It looks like the time premium for $100 strike is $10, and for $270 strike is $28 ... so roughly 10% of the strike price - with one hour of time value.  That's very expensive.  Another factor: trading volume for $100 strike is 1,000 with about 10,000 contracts owned.  So not that many changing hands.  It also would go against what Wall Street Bets is trying to do: why sell to the market maker when the goal is to exercise options and pressure them to obtain the shares?

The price is slowly declining towards the 4pm hour, which is kinda sad.  I just sold off my last 3 shares at $260/sh.  Overall 11 shares sold at 53% profit - most with limit orders that executed at the open.

BicycleB

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Re: Is this how the hedge funds screwed up their GME play?
« Reply #20 on: January 29, 2021, 07:17:38 PM »
Head spinning. Posting to understand someday. :)