Squeeze Likely Over
My guess is the squeeze is over. Hedge funds have covered their shorts. And we have a three surge stage that frequently marks tops in short squeezes.
The remaining shorts are small players who rode it out, hedge funds who recently got short timing the play much better, or the market makers who are now the ones net short in size.
If my thesis is correct, GameStop will go back where it came from. The market makers will pull bids as they did today.
Option Buying
Put speculation is now on the rise. Until now it was call speculation. The call sellers hedged by buying shares driving up the price.
That dynamic has changed. PUT sellers short stock as PUTs get into the money.
Options bets fuel both rises and declines, especially in illiquid stocks.
How to Play?
I am not touching this. For starters I could be wrong about the squeeze being over. I doubt it but I could be.
One could try options, but the premiums are nuts.
GameStop Option Prices
Those are near-term, near the money Option Prices From the CBOE.
Each option represents 100 shares but prices are per share. Thus prices are 1/100th of the money to buy or sell an option.
For a strike 215 PUT option that expires on February 12, in 9 trading days you will pony up $7,485 dollars or $78.85 per share.
To make any money, shares will have to decline enough for you to recover your price paid, and it has to happen by February 12.
The break even price is $215.00-$78.85 = $136.15 and it’s at $225 now.
Who Wins?
You may win if you are correct about getting a big enough plunge in the next 9 days.
But the market maker who sells you the PUTs will make money no matter what happens.
He will hedge by shorting if the price declines and just watch you lose all your money if the price rises.
Maximum Pain
Don’t count out price manipulation in which the price on February 12 falls at the exact price that makes the most options (PUTs and CALLs) expire worthless. That is known as “Maximum Pain”.
There are technical hedging reasons why Maximum Pain happens but manipulation also happens if the market makers can get away with it.
GME Home Runs
Nonetheless home runs can and do happen. But in this case the home runs are likely in the past.
People rode this up from $17 to $413 and you want to get in now on the long side?
Why?
Yet the short side is not without risk as two hedge funds nearly blew up over this. One lost half their money in a month. It’s possible the squeeze is not over.
But if you believe like me that the squeeze is over but don’t like huge option premiums, the buying deep in the money PUTs will effectively turn your option play into a short without the risk of getting squeezed out.
For example, a Feb 26 strike $800 PUT would set you back $602 but the cost would be $60,020. To gain on the trade GME would have to close below ($800-$602 = $198) vs the current price of $225.
The first advantage in the trade is you have a maximum defined loss of $60,020 vs an unlimited loss in shorting.
But the advantage of that trade is you only need a decline of $27 not $89 to break even. You would also have until February 26, not February 12 to be correct.
Care to put up $60,020 per option? I don’t. Care to bet on a $90 plunge by February 12? I don’t but some have.
I suspect option premiums are so high that near term, near the money CALL and PUT buyers both get wiped out.
Related Discussion
Please see related discussion.
- How Do GameStop and Silver Trading Differ From Bank Lending?
- Naked Shorting is Illegal: So How the Hell was GameStop 140% Short?
- The Reddit Inspired Attack on Shorts Exposed Wall Street Sleaze and Corruption
- Silver Coin Dealers are Overwhelmed With Orders as Reddit Speculators Takes Aim
Number 1 Rule
Above all, remember my #1 rule: You may win but the casino never loses.
And once again blame the Fed. The casino action in money leads to casino action in stocks.
Mish
Aspen is affordable? Who knew?
Laughable article.
There are going to be a bunch of FOMO longs that are going to feel serious pain once the fever breaks. It is fundamentally a dead business, with when not if it will declare bankruptcy.
I was saying the same days ago, but they’re restructuring for digital/streaming, last earnings reported +300% rev’s online, they also added the founder of Chewy to their board.
It’s still a tall order, but they are acting on it.
Awfully late to the game. Of course there is a chance, there is always a chance, but not with my money
“Hey, wanna hear the most annoying sound in the world?”
Not to mention the billion in free advertising, 8 million new customers, a $1.3 trillion market and growing and fresh flow of capital. If they valued it like TSLA it be $300 a share.
It was over when the brokerages cut off buys. My question is, where is the SEC?
I always thought naked shorts at over 100% of the float was illegal. Rigged
I applied common sense to the situation and this is what I came up with. I looked at the price chart from August. The price began increasing in Sept. So the shorts knew they were being squeezed in Sept/Oct. My question is this. Why didn’t they get out when the price was $6, 10, 20 etc? First I thought that it was just greed and they figured they’d still win. Can’t believe they doubled down and took a 3 billion actual non paper loss. Then I looked at the short interest for the same time period. It fluctuated between 58 and 68 Mil from Aug – Jan. Weird, they didn’t even try to get out or did they? Every time the price goes up past their short position they take a hit on the balance sheet so they have to keep the short on to avoid a margin call. They also have to buy shares to get out of the short position If they take their short off and start buying and with the WSB kids holding and buying which is continuously reducing the float there is almost zero resistance on the upward price. You see it’s not that they don’t want to get out……THEY CAN’T GET OUT! THEY WOULD HAVE BY NOW. When they shorted GME 140% of the float they figured GME would go bankrupt and their short position would be wiped clean. If you short more than a company’s float and you get squeezed and the longs only hold and buy it’s impossible to get out legally! ( All the other short plays will fail at some point.) They can try to get out the borderline legal way with FUD ( happening now ) and hope enough longs sell which isn’t going to work. (Diamond hands.) Their other option is illegal which would be using naked shorts to keep a lid on the price while simultaneously buying, thereby, converting their naked shorts into a decrease in the true shorts. I predict the “failure to deliver” from the naked shorts will start running into the millions, the media won’t report it, the SEC will ignore it, we’ll be conspiracy nuts and no one will go to prison because if it were done legally GME would bankrupt Citadel ( inevitable) and wipeout the NYC pension fund. They’ll never let that happened. The corruption will be exposed for the world to see. No point playing in a rigged game where one side is allowed to cheat.
“The corruption will be exposed for the world to see. No point playing in a rigged game where one side is allowed to cheat.”
This happened in ’08.
To that, a friendly reminder from the late Antonin Scalia – “Money is free speech”
I think what’s under reported so far is that institutional investors own 113,664,181 shares of gamestop right now. That’s 162.97% of the 71 million that actually exist. -source: https://fintel.io/so/us/gme
https://fintel.io/so/us/gme
Individual investors likely hold between 10-40 million shares. It’s difficult to gauge, but these numbers are based on the Wall Street Bets Forum membership of 2 million, where each member owns between 5-20 shares. These numbers are extremely conservative.
Most members prefer higher risk/higher reward and possibly have the entirety of the actual outstanding GME shares and more. Furthermore, the forum has now grown to 8 million subscribers, most eager to be a part of what they see as the greatest opportunity to win playing the same game as the hedge funds for the first time. (And maybe last)
Shares currently held by investors (not short sellers):
Low – 123 million or 173%
Mid – 153 million or 215%
High – 184 million 259%
These particular investors aren’t in any hurry and understand the consequences of their investment strategy and that of the short sellers. The shorts massively overreached and will eventually need to repay their borrowed shares.
Does it look likely they’ll be able to do that if the total number of investors is more than 200%?
May be worth noting a possible stop at ~$126 where it plunged back on 1/28, it’s hovering there in pre-market this morning, today will be telling.
It’s probably over but the run was severely truncated by the limits to the buying side of the marker. There was enough momentum and fomo to make it rise until Wednesday of this week IMO.
“The casino action in money leads to casino action in stocks.” Great line.
Nice explanation of the possible option plays…Reminds me again of why I don’t play on that playground. I paid my tuition, lots of it, a long time ago, and I learned a lesson about leverage that I won’t forget.
I just wonder if we will see more mania buying behavior in physical silver? I see that my own favorite dealer has both coins and bars again today, including 100 oz bars which are what I used to buy when I bought a lot of silver. The premiums are still $4.85/oz. I think I can say no.
I’m down nearly fifty bucks on my SLV trade so far…mostly because I didn’t follow one of my own rules, which is to never to buy anything at the open….However, I think the chart looks fine.
My biggest concern is the strengthening USD…it reversed on 1-5-21. It might have another leg up after this daily cycle eases….
It’s a fun trade.
First hour is the crazy hour. I learned to sleep in an extra hour and step in after the laundry is done.
Dollar steaming ahead..Probably in a 2nd daily cycle off the recent low, heavily right translated 1st daily cycle now complete ( at a glance…I haven’t been counting)..silver taking a minor hit at the NY open.
What that means is that this trade has headwinds….I don’t see that mania physical buying manifesting as any kind of a coordinated effort.
Probably best to let my trade ride and wait for the market to heat back up…we are entering the slow part of the year….might take some time….but not much real downside pressure either, imho. It’s just going to get boring.
Non-phys silver seems really fishy though. Good luck finding bullion near paper prices. SLV is being ragdolled already, looks like big money is taking retail lunch money right now. Ten foot pole territory IMO.
SLV is fine for a trade. I don’t consider it an asset worth accumulating….no way. But I’m playing for pocket change.
I really have no need to accumulate physical metal, AFAIK. I have lots of tangible assets, all of which are doing very well at present.
So…..interesting day in SLV, if not a green one.
The first thing that happened is that the gap at 25 got filled right away….and then SLV dropped down and touched the 150 EMA and bounced off it nicely.
Here in the last hour of regular trading, volume is building slightly back up and the MACD looks like it’s headed for a crossover…..all other things being equal, I would guess tomorrow will be a mild up day for SLV..
Lots of resistance around 27….going all the way back to the summer high. SLV got higher, yesterday, but it couldn’t begin to hold it…… I’d expect to see the 27 area continue to be a tough area for a while. But if we break through that, it could run.
Spot on. I got the $50 Feb 26 put when gme was at 357 last week. It’s down $100+ in a week and my put is worth less. Silly me, options are for writers of the contract
The market makers reduced the implied volatility on the plunge. Normally it’s the opposite. Plus you have time decay.
I wrote a long, detailed explanation of why hedging pushes the stock towards MaxPain as expiration approaches, even without manipulation, some twenty years ago. Wow, how time flies….. I’m sure it’s probably still online as I posted it to Silicon Investor, which still exists, but I have no idea which stock thread on SI I posted it to, and I don’t even remember my login id anymore.
The short version is that, as expiration approaches, the Beta approaches 1 for in the money options, and approaches 0 for out of the money options. Thus, the hedges on the out-of-the-money options are unwound, pushing the stock in the direction of MaxPain.
Searched for it, but can’t find it. I did find that I posted on SI under the same name I use now, but have no clue my login credentials anymore. Oh well….
I totally agree with Mish. If you want to play the short side, the deep in the money options are the only way. I doubt you can find stock to borrow to short it, so a normal short is out. The options out of the money or close to the money would be a poor choice.
Wish I was smart enough to figure this out on Thursday morning. I had the timing right but I-broker wouldn’t let me short it. It was over $400 when I was trying to short.
Credit Mish for figuring out the idea of far-in-the-money puts. I knew that GME would crash, but did nothing with the info as I was sure there was no way to short it, and also knew that the option premiums would be ridiculous. It never even occurred to me that any market makers has created 800 puts. I figured there would be puts at 50, or 100 but likely not higher than that.
#1 rule: You may win but the casino never loses
#2 rule: Don’t forget rule #1
There are only 3 ways a Monopoly game ends:
Winner takes all.
Losing/bored players slink away for a snack and never come back.
Somebody dumps the table on the floor.