[4Liberty]

"To “short” a company is to bet on the price of the stock falling, in simple terms. The hedgefunds would borrow shares of the company from other investors, sell the shares on the markets at the current high price, then buy them back at the expected future low price, and return them to the investors, pocketing a profit.

2 questions:

1. Why would "other investors" in the description above, let the HF "borrow" the shares - why wouldn't they just sell at the initial high price and pocket the money? Guess I'm not understanding the short-selling process.

2. Why is this such a big story? Isn't GAMESTOP a shrinking, tiny outfit? Like Blockbuster videos was? This isn't a company like Toyota or Microsoft, we're talking about. I don't get it...

[Oshkalaboomboom]

The stocks themselves don’t matter. Both sides are manipulating the rules of the trading game to benefit themselves. The dispute is that the big guys are losing the manipulation game so they are pulling strings to gain back their advantage. It’s all about the Benjamins. As far as the stock is concerned it could just as easily be Blockbuster. It just happens to be Gamestop.

[LukeL]

The stock price was around $15.00 when these hedge fund people put out short options. The way it works is a broker gives the hedge fund stock for free, the hedge fund sells the stock right away for a profit. However before a certain date the borrower is compelled to buy the stock on the open market and return it to the broker. If it happens today it would mean that for every share borrowed the hedge fund would lose $285.00. The other issue is they borrowed 140% of the total available stock. The more they try and buy the less supply there is and the more the price goes up.

[LukeL]

To answer #1. The reason why they would borrow out shares is because they think the price will go up. In a scenario where they borrow 100 shares at $10.00 per share they lose $1,000.00 right away. However if when the stock is returned the price is $15.00 per share they now have a stock value of $1500.00.

[Dave W]

The HF tried to destroy this company, as well as, AMC and others by shorting all of their shares. The little guy thought this was unfair ganging up on companies, particularly, those hard hit by covid, such as AMC. The little guys fought back by purchasing shares in those companies, some stocks soaring hundreds of percent, if not more. The HF were outraged that the little guys were making money off of them and not the usual other way around. One HF almost went bankrupt, if not for an infusion of 2.5 billion in cash on Wednesday. This is epic. There will be books and movies for years about this.

[stig]

Why would "other investors" in the description above, let the HF "borrow" the shares - why wouldn't they just sell at the initial high price and pocket the money? Guess I'm not understanding the short-selling process.

The brokers hold your stock certificates. In your terms of agreement for your account you agree to allow them the use of your stock for such purposes. It allows them to create the short market.

If you want to sell your shares they will borrow from someone else to allow you to get out of your position. This works much the same way as the bank taking your money to make loans. On any given day not everyone is going to withdraw. The bank is usually required to keep a certain amount of cash on hand to handle the day to day withdrawals that would occur. Brokers are likely supposed to keep a certain amount of shares out of this process but off hand I don't know the percentage.

[mewzilla]

See if this helps....

https://greatawakening.win/p/11SK7KUx7c/stocks-shorting-and-gme-gamestop/

[bert]

For the record, the shorts borrowed 140% of the total stock and in so doing set themselves up for trouble.

all this talk of elites fails to adequately describe what is actually a game being played in real time. The internet allowed communication to develop a group of anti shorts who collectively played the game in an outstanding manner.

They were legal. The shorts were illegal and have no defense

[zeugma]

1. Why would "other investors" in the description above, let the HF "borrow" the shares - why wouldn't they just sell at the initial high price and pocket the money? Guess I'm not understanding the short-selling process.

If you're holding a stock long term, and someone offers you money to 'rent' them for a while it might sound like a good deal. Free money is free money.