Okay fellow apes, I see a lot of confusion and worries about all sorts of stuff, especially all this mess with real, fake and synthetic shares, what exactly short sellers need to do to cover, and also when it comes to selling your shares, a topic we don’t discuss too much, because apes only know how to BUY and HODL! 💎🤲🏼
I’ll try to clear up some confusion, point out some common misconceptions, answer some questions, and in the end present my theory for the best exit strategy!
This post is for all apes. I’ll do my best to explain stuff in a way that even smooth-brained apes may be able to follow, but I also dive a little deeper here and there, for the more wrinkle-brained apes who are interested in the deets.🚀 Topics I will cover:
- Are my shares real?
- Is there any point in buying more shares when there are no real shares left?
- Can short sellers cover using fake/counterfeit shares?
- How can there be more than 100% of the float/shares sold short? (And is it possible without naked shorting?)
- How do the short sellers keep up the naked shorting?
- Do the short sellers have to buy every single share to cover?
- Will I get to sell my shares at any price I want?
- What is the best exit strategy?
But where’s the TLDR?
I will not provide a TLDR, but I will throw in some bullet points to summarize each question along the way. If you read the bullet points, you should get the essence of it.
If you think you know the answer to all of the above questions, I suggest you just look for the bullet points, and see if you agree. If you don’t, you can read more, if you still don’t agree, we can have an interesting conversation in the comment section.
At least scroll down and read the part with the big diamonds! (Near the bottom.)A note on terminology
I hate the very idea of short selling, and often use the derogatory term ‘Shit’ when referring to a short seller, and pretend it’s an abbreviation for ‘Short selling Hedge fund, Investor or Trader’ or some BS like that. Other than that, I’ll try to define each abbreviation where I use them.🚀 Are my shares real?
I’ll use the following 4-step illustrating to explain this stuff. (You don’t need to understand all of it, I’ll explain every step eventually.)
4-step illustration of short selling
Step 1: There are 70M shares issued by the company (the shares outstanding), no shares are sold short, and no apes are confused.
Step 2: Some Shits come and borrow a bunch of shares and sell them! Whoa! Who owns the shares now? Are there any fake shares? Apes be confuse!
First, those who bought from the Shits get the actual, real shares. The Shits didn’t have any shares, and still has no shares. The tricky part is the ones who lent the shares. If they file their holdings to the SEC at this point, they would actually still list these shares in their holdings, just as they would before they were lent out. In fact, if all shareholders were to report their positions at this point, and 40M shares were borrowed and sold short, then a total of 70M+40M=110M shares would be reported as being owned, even though there are only 70M real shares! In this way, short selling adds shares to the pool of shares on the market.
But since the shares were lent out, the lenders don’t actually have the shares. For example, they will not be allowed to use their shares to vote at the annual shareholders’ meeting. But they still own the right to the shares, more specifically, they have the right to recall them at any time they want. Recalling is the lender saying “Hey, Shit! Give me my shares back!” and the Shit has no choice but to do so. A lender will usually only recall their shares if they plan to use them for voting, or if they want to sell them. Note that lenders are free to sell their shares at any time, since they can just recall them to deliver them to the buyer!
The Shit, however, does not have to get the same shares back when they are recalled, since all shares on the market are interchangeable. The Shit may go and buy shares in the market, or find someone else to borrow them from, to get their hands on real shares to give back to the lender.
(The terminology here is really confusing, but many would call the lenders’ shares “synthetic” at this point. But the term “synthetic shares” can mean a number of other things too, so if I just called them synthetic, a horde of apes would spam the comment section screaming “That’s not what synthetic shares are!”, so I will try to refer to them simply as “lent”.)
What did we learn?
- If you bought shares, you own real shares! (Unless your broker lends out your shares.)
- The lenders don’t own any actual shares, but have the right to recall them, and are free to sell them at any time. They just have to recall them when they sell.
- Short selling increases the number of shares on the market, both the lender and the buyer will report that they own them.
🚀 Is there any point in buying more shares when there are no real shares left?
Simple answer: Yes!
The “no real shares left” part is actually a myth. From the above lesson, we learned that the shares being sold are the real shares. If they originate from someone lending them for shorting, the lender is stuck with “fake” shares, not the buyer! As a buyer, you will never know where your shares came from, you only know that you own the shares. In a way, you could rather say that only the real shares are left to buy.
What did we learn?
- There are always real shares left. If you buy shares, you always get real shares.
🚀 Can short sellers cover using fake/counterfeit shares?
Simple answer: No, that’s just not possible.
Many apes have asked me, that with all their trickery, isn’t it possible that those Shits may cover their shorts using fake or counterfeit shares? I have read many suggestions on how people imagine the Shits could trick their way out of all of this, but all the suggestions have some flaw(s), based on a lack of understanding of either the basic principles of shorting, or the technicalities regarding how trades are actually executed. At best, the suggested scam only moves the responsibility to deliver the shares around, and/or extends the deadline to deliver them, and this kind of behavior is observed with GME. But this is like tossing a hot potato around, the potato doesn’t disappear until someone swallows it.
The simple truth is that the only way to really cover a short sale is to deliver back an actual share to the lender. (Only exception to this rule is if the lender sells their shares to the very same Shit that borrowed them, in which case they will end up owing each other the same amount of shares, and the short sale is closed without any shares changing hands. This is like paying for a book you never returned to the library.)
What did we learn?
- The only way to cover a short position is to deliver a real share to the lender, or buy the share from the lender.
🚀 How can there be more than 100% of the float/shares sold short? (And is it possible without naked shorting?)
Some people claim that any shares sold short after the entire float is shorted are “fake” or “counterfeit” or something like that, you even see apes who provide otherwise excellent DD say something like this from time to time. This is simply not true!
Let’s look at the illustration from the beginning of the post again. In step 2, 40M shares were borrowed and sold short, and we’ll assume that these were all the shares that were available for borrowing at this point. The remaining 30M shares are held by someone who does not allow their shares to be borrowed. After step 2, these 30M real shares remain, but there are also 40M real shares that are now held by “new owners”, and they may very well want to lend their shares! (Remember, they don’t know if their shares originated from a short sale or a long sale, all they know is that they bought the shares, and can do with them as they please.) Let’s say 25M of these 40M become available to be borrowed, and 15M don’t. (We’re now at Step 3 in the illustration.) 65M shares are sold short, this is almost all of the shares outstanding, and significantly more than the float (usually the float for GME is estimated to be around 45M shares). But in theory, this process could go on indefinitely, as long as new buyers allow their shares to be lent. If more than 5M of the 25M shares sold short in step 3 were borrowed and sold short again, there would be more than the shares outstanding sold short, without any shady business!
At this point I’ll throw in some mafs, just so you’ll assume my brain has wrinkles, and you’ll accept everything I say as the absolute truth.
If X is the fraction of shareholders who allow their shares to be borrowed, and this fraction is the same for “new buyers”, then the theoretical limit L for how much of the shares that may be borrowed and sold short is given by:
L = (X + X2 + X3 + X4 + …) = X / (1-X)
If X = 0.2 (only 20% of all shares are available to be borrowed), we get:
L = 0.2 / (1 – 0.2) = 0.25, or 25%
meaning 25% of all shares can be sold short.
If X = 0.8 (as much as 80% of all shares are available to be borrowed), we get:
L = 0.8 / (1 – 0.8) = 4, or 400%
meaning all shares could be shorted 4 times before running out of shares to borrow!
(This is very simplified. Different kinds of owners, like insideres, institutions and ETFs, have vastly different likelihood of lending their shares.)
What did we learn?
- In theory, **the entire float could be shorted many times over without breaking any rules (**without naked shorting), as long as enough shareholders are willing to lend out their shares.
- Since not all shareholders allow their shares to be borrowed, the short sellers will at some point run out of shareholders to borrow from, and can only keep selling short if they resort to naked shorting. (This is illegal, but those Shits still do it).
🚀 How do the short sellers keep up the naked shorting?
Many big actors on Wall Street, including our “beloved” Shitadel (Citadel Securities LLC, a huge hedge fund that largely bases their business on short selling), have been fined multiple times for playing dirty, but they don’t stop. They just consider the fines “the cost of doing business” and continue to fuck over everyone they can squeeze a cent out of. The simple fact is that naked shorting, even though illegal, occurs on a daily basis, partly because the rules allow for too much slack, partly because Shits don’t give a fuck. Evidence points to this happening on a massive scale with GME. But how does it work? This is insanely complicated, so I’ll only scratch the surface on this one, but it will still be a wall of text.
When you buy shares, it usually looks like you get the shares immediately in your trading account. But in reality, all trades are actually executed (or “cleared”) on the second business day after the trade occurred, denoted T+2. This basically means that the buyer (or the broker) has two days to come up with the cash, and the seller has two days to deliver the shares. Almost all trades are executed through a clearing house (DTCC). When you buy a share, the trade is sent to the clearing house, who issues an IOU, a “fake share” to the buyer, which is more or less just a promise that a share will be delivered. Then they wait for the seller to actually deliver the share within T+2 days. Once the share is delivered, money goes to the seller, and the share goes to the buyer. All this happens “in the background”, you’ll never know if you have a real share or an IOU assigned to you, but you should assume that your newly bought shares are only IOUs for the first three days (the day you bought them and the following two business days). So, even if nothing shady is going on, there are always millions of “fake shares” (IOUs) out there, simply because millions of shares change hands every day, and trades aren’t cleared yet. But without short selling, an IOU is always paired with a real share in the seller’s account, it is simply not delivered yet.
The problems only start when shares are sold short, and the seller hasn’t bothered to borrow them. (This is Step 4 in the illustration.) The Shits don’t worry about such tiny, insignificant details like owning what they sell, and the rules only say they must think it is probable that they will find the shares somewhere in time. If the short seller is unable to borrow shares, the seller will fail to deliver the shares in time, which will make DTCC really upset, and they may even start crying. (Or they may revoke some of the Shit’s short selling privileges until they deliver the shares, or even go buy the shares in the market on their own to force the seller to close the short sale, and bill the seller for any losses, or something like that. Boring stuff, who cares, point is that:) Nobody wants that!
So what do the Shits do in this situation? Do they realize they had no right to sell those shares in the first place, and buy the shares back to close their position, like any reasonable person would? Of course not! They go to a market maker and says “Hey, if I give you a little cash, could you pretend for a while that you sold me some shares?” The market makers, whose primary task is to provide option contracts to those who want them, have more privileges than most, which is intended to maintain the liquidity of the options market, i.e. to make sure anyone can buy options when they want. And of course, if they can make some money by exploiting these privileges, many market makers are happy to oblige. Now this is really complicated, but if you feel you have enough wrinkles in your brain for it, you can read this post to learn exactly how they do it. I’ll just try to give you the general idea of how they pull it off:
A Shit sells a share short. Shit now has two days to deliver a share to DTCC. Two days later, the Shit still doesn’t have the share. The shit goes to a market maker (MM), and they agree that for a small premium, the MM will sell a share to the Shit, so the Shit can deliver it to the DTCC, but the Shit must in return also sell a share to the MM. (They do this using options and some trickery, to camouflage what they are up to.) The trade saying the Shit bought a share from the MM is sent to the DTCC, and the deadline from the short sale is considered met, and DTCC is happy. The MM now owes a share to the DTCC, but then the trade saying the Shit sold a share to the MM is also sent to the DTCC. Now the MM both owes a share and is owed a share, so this cancels out, the MM has done their job and earned some quick bucks, and is now out of the picture. But the Shit still owes one share to the DTCC, the one sold to the MM, and has a new deadline of two days to deliver it, since this is a new trade. Final result: the same amount of shares is owed to the same people from the same people, but the deadline is extended. In this way, the Shit is able to kick the can down the road. This process can be repeated almost indefinitely, as long as the Shit can pay off the MM to keep doing this, and in some cases, they are able to extend the deadline a lot more than two days at a time.
If you still didn’t understand anything, it’s okay, just know that the Shits are able to extend the deadline for delivering shares after naked short sales, by paying off (bribing) market makers who are in on it, by doing some tricks with options, etc. (This is what all the “deep ITM options” talk is all about.) It costs the Shits money to keep this up, but less than buying shares when the price has gone up a lot. This stuff is illegal, not too well hidden, and new rules recently issued by DTCC has also made it a lot more difficult to keep up. (Some posters here have claimed that it will soon be impossible to keep this up, and some have already pointed out a decline of volume for deep ITM options, but we’ll just have to wait and see. They know many tricks, those Shits…)
So short selling creates “fake shares”, shares that are only promised to be delivered, but who gets them? Well, nobody and everybody. The DTCC does. You see, the DTCC doesn’t keep track of every single share and every single shareholder in a one-to-one relationship like you may imagine. Shares are just like money in this sense, completely interchangeable. You can think of it like the DTCC simply has a record of all the shareholders who should have shares, as well of records of who owes shares, and who is owed shares. Like you may go to the bank and withdraw cash from your account, you can get your shares from the DTCC when you need them, e.g. when you sell your shares. And just like your Bank won’t have enough cash in their vaults to match the value of all their deposit accounts, the DTCC won’t always have enough shares to match the positions of all shareholders combined. And just like the liquidity of your bank is nothing you ever need to worry about, how DTCC does all their transactions is not anything you need to worry about! Just know that you can sell your shares whenever you want, and you will get the money for them, no matter how many “fake shares” there may be in existence. This business with fake shares, naked shorting, etc. may in the end cause huge losses for many “innocent” parties when this rocket lifts off, like the DTCC and their members, but never for the shareholders! I won’t go into any details, but there are a number of mechanisms in place to ensure this. The shareholders are the most protected party in all of this mess.
What did we learn?
- There are always lots of “fake” shares out there, called IOUs, simply because of the way trades are executed.
- Naked short selling creates more “fake” shares (IOUs), but the short sellers have a deadline to deliver actual shares.
- Short sellers are able to pay off market makers to help them extend this deadline again and again, pretty much indefinitely, as long as they can afford it. This is illegal, but definitely happening.
- You don’t ever have to worry about whether you own real or “fake” shares. You can always sell your shares, and will always get your money for them.
🚀 Do the short sellers have to buy back every single share?
Simple answer: No, just the same amount as they sold short.
This quickly gets a bit complicated, but I’ll do my best to explain. For short sellers to close their position, or “cover” as it is often referred to, they must deliver back real shares to whomever they borrowed from. If they borrowed and sold 10M shares, they must buy 10M shares and give them back. If they shorted 100M, they must buy back 100M. And in the end, when all Shits have covered, there will be 70M shares left, the same amount that was issued in the first place. But even if the float has been shorted several times, it is still very possible that some shares are not involved in this process at all!
At step 3 in the illustration, there are 135M shares on the market, and they have to get it back down to 70M as in step 1 to cover all their positions. Suppose the Shits do the exact reverse of step 3 and 2 (in that order) in the illustration. Now all shorts are covered, and all is well, but note that the 30M shares that was not lent out in step 2 were never involved in the process of shorting and covering. And the 40M shares that were lent out to be sold short in step 2 were held by the same people the whole time (the lenders), and were not bought back. This sums up to 70M shares (the total number of shares outstanding) that were not bought to cover! Even if the entire float was shorted many times over, some portion of the shares may never be involved in this process at all, and 70M shares (the number of originally issued shares) will never be bought to cover. If the Shits have shorted more than the float, this simply means they have to buy back some shares more than once. More specifically, they must buy some shares and return to one lender, then buy shares from this lender to give to another lender, and so on, until all lenders have gotten their shares back.
It doesn’t matter to the short sellers which shares they buy to cover. If they buy real shares, then great! If they buy shares that have been lent out, the lender must recall the shares and deliver them, and the short seller still gets real shares to give back, so also great! (If the shares were lent to the short seller in question in the first place, they will end up owing each other the same amount of shares when the lender recalls, so it just cancels out. If it was lent to a different short seller, the other short seller is now forced to cover to deliver them.)
What did we learn?
- No matter how many shares are sold short, not all shares must be bought to cover. The number of shares outstanding (almost 70M for GME) will not be bought back in the end.
- It doesn’t matter to the short sellers which shares they buy, they just have to buy the same amount as they sold short.
- Even shares that are lent out can be bought to cover, it just means that the lender who sells them must recall the shares, which will force more shares to be covered.
🚀 Will I get to sell my shares at any price I want?
Simple answer: No. Unless you personally own all shares outstanding, the price you’ll be able to sell at depends on others.
This is not easy to explain in a sentence or two, and I actually wrote an entire DD on the subject a few days ago, but I’ll give you the essence of it here.
I already concluded above in the section “Do the short sellers have to buy back every single share?” that they don’t. This means, for example, that if you set your price to a trillion dollars, and everybody else are willing to sell for 100 million, you will never get to sell your share, no matter how many shares are sold short. As I tried to explain using the 4-step illustration, short selling adds shares to the original shares outstanding. Simply put, this means that no matter how many shares are sold short, 70M shares (the number of shares outstanding) will not be bought back when the short sellers cover. For example, if 100M shares are sold short, then there will be 170M shares “out there” owned by some person or entity, and any of those 170M shares could be put up for sale, and the short sellers must only buy 100M of those to cover all their positions. If all shareholders simultaneously offered their shares for sale at the price they desired for each share, and all the short sellers bought all the shares they needed to cover, the 70M most expensive shares would not be bought. By this simple observation, one could assume that the peak price of the squeeze will be determined by the 70 millionth most expensive share among all shareholders (but it’s not that simple, at least there’s a lot of psychology involved as well).
But not only apes will be holding those 70M shares! Some shares will never be put up for sale, at least not under normal circumstances. We can only speculate on how many shares are truly “locked up”, but I would say that it’s safe to assume that Ryan Cohen won’t be selling any of his 9M shares any time soon, ETFs have specific rules and dates to do their rebalancing, market makers are holding shares for hedging, and many big whales are holding shares for the long run, and don’t really care for the “mood swings” of the market. All this will significantly contribute to the squeeze, as the short seller must buy back a larger portion of the shares that are available on the market, at the very least, this will significantly raise the price of the 70M most expensive shares, and thus increase the peak of the squeeze.
But what if the entire float is held by someone who refuses to sell?
The diamond handed apes are what separates GME from anything previously seen in the history of squeezing. We have already established that the most expensive shares will determine the peak of the squeeze, and just holding shares will definitely contribute massively to the squeeze. But if all the shares outstanding were held by truly diamond handed apes (together with insiders like Ryan Cohen, ETFs, and possibly some funds and long whales), who simply refuse to sell their shares, THAT is when the short sellers would be in REAL trouble! This would mean that there would be less shares available than they need to cover, and they would be forced to buy every single remaining share, no matter the price, and would still not be able to cover! This is often referred to as an infinite squeeze. This would truly be the Mother Of All Short Squeezes (MOASS), I’m even willing to put a few extra MO’s in front of that! If you really want to squeeze those Shits, this is the scenario you should aim for.
Is the infinite squeeze a realistic scenario?
I cannot factually answer this question. There are just too many factors involved, and too little reliable data to accurately estimate these factors, the most important factor being how many shares are actually held by retail investors, and how many of those actually have true diamond hands. (Unfortunately, this is a scenario many apes out there are already taking for granted, like in this post which is trending today, but this is dangerous thinking!) In my opinion, a literal infinite squeeze can never happen. At some point, the price will reach levels where even the most diamond handed ape, insider or investor would sell. So the infinite squeeze is more like an utopia than a realistic scenario, if you ask me.
But in my last DD titled “The MOASS is inevitable!” I argued that even with very conservative estimates, it seems very likely that retail does own the entire float, quite possibly even all shares outstanding. We can’t say for sure how much retail owns, and we can’t say how diamond handed the average retail investor will be when this starts to squeeze. But apes don’t need to own everything, and the short interest does not have to be several hundred percent, for this to squeeze extremely hard. In fact, what I sincerely believe is that this will squeeze harder than anything we’ve ever seen! The squeeze will just keep going as long as retail continues to control the float, by holding. And every share with a “ridiculous” price target will increase the peak of the squeeze!
And there’s one important thing to notice here: this does not really depend that much on how big the short interest is! A higher short interest simply means that more shares must be bought, but the infinite squeeze could happen with just a single share sold short! The most important factor is how many shares that are held by diamond hands!
What did we learn?
- This will squeeze harder than anything we’ve ever seen! Even by conservative estimates, the numbers say we’re in for a massive squeeze!
- Still, you can’t just “name your price”, the 70M most expensive shares will never be bought. If you set your price at 1 trillion, you simply won’t get to sell.
🚀 What is the best exit strategy?
One of my favorite movie scenes is from “A Beautiful Mind” when John Nash (Russel Crowe) realizes that “the best result will come from everyone in the group doing what’s best for themselves AND for the group”. This “Equilibrium Game Theory” is highly relevant here. If all apes acted to maximize the gains only for themselves, everyone would just try to sell before everyone else, because in the end, 70M shares will not be bought, and nobody would want to be left bagholding any of those. The result would be that this would never squeeze at all, and nobody would get any tendies. On the other hand, if nobody thought of themselves, nobody would sell, but keep holding to maintain the squeeze, and even if this would become the biggest squeeze ever, nobody would get any tendies, because nobody sold. The point is, if apes want max tendies, apes need to find the middle ground between looking out for themselves, and looking out for the group.
I can’t tell you what to do with your money, and your shares, and you’re ultimately on your own when it comes to the decision to sell. What I can say is that this squeeze will only reach its full potential by holding as many shares as possible for as long as possible. The peak of the squeeze will be determined collectively, and all apes will benefit the most from collectively holding on to all shares as long as possible.💎💎💎My theory is that apes collectively will maximize their profits if they aim to keep holding most of their shares to the very end, and only sell off a small fraction of their shares AFTER they believe it has peaked! 💎💎💎
We know that the more shares that are kept off the market, the harder this will squeeze. It will be tempting to start selling off shares quite early to secure some profits, cover the original investment, etc., but if all apes do this, it will significantly reduce the squeeze! By continuing to hold on to all shares, the squeeze will probably peak literally more than 10 times higher, which means that apes can sell less than 10% of their shares for the same number of tendies, and apes will still have more than 90% of the shares left to keep the squeeze going! I mean, instead of selling 10 shares at 100k to get 1M, it is FAR BETTER for both you and for other apes if you sell one share at 1M and have 9 shares left! This will maintain the squeeze for much longer, and make sure all apes get serious tendies! With the 90% remaining shares, each ape can then wait to see if it squeezes even higher, or slowly sell on the way down, without causing the price to plummet, or just keep them because the ape already got tendies, and the ape likes the stock!
Say the price peaks at 1M, and an ape with 10 shares sells 1 share at 1M, and then one share every time the price is halved, the ape will then end up with (1M + 500k + 250k + 125k + …) ≈ 2M! That’s a doubling, using probably the most relaxed strategy there is, and without causing any harm to fellow apes!
Even if you don’t completely buy my theory, I believe there are some general guidelines that will benefit both you and all other apes when the time comes to sell:
- Never sell on the way up! Selling on the way up will take fuel from the rocket, reduce the squeeze, reduce the peak, and ultimately reduce your own returns. Every share you sell before the true peak is reached will reduce the peak. Only start selling when you believe the peak has been reached!
- Be prepared for some turbulence! The way to the highest peak will probably not be a straight line, and dips are to be expected even after the rocket has launched. (Just imagine what it would look like if a major whale decides to cash in at a point. The price would stagnate or even dip significantly, but the squeeze won’t be over until the apes say it’s over!)
- Never sell all at once! If you sell off your entire position at once, not only will you ease the squeeze, and contribute to a plummeting price, you may also miss out on the true peak.
- Sell as slowly as you can! If you sell only a small fraction of your shares at a time, you will help maintain the peak of the squeeze for as long as possible, and help your fellow apes get some tendies as well.
- Believe in the MOASS! Lack of faith is what causes paper handing and panic selling. The squeeze is a self-fulfilling prophecy. You decide when to stop squeezing using your shares!
- Trust your fellow apes! Apes together strong! In the end, squeezing those Shits is a collective effort, and the peak of the squeeze will be determined by the collective effort of all apes. If you trust that your fellow apes are holding, you will hold too!
- Don’t listen to anyone saying the squeeze is over until it is over! The MSM, maybe even our subs, will be overrun by people telling you to “cash in before it’s too late”, or anything that will convince you that the squeeze is over, and all other apes are selling. Don’t you dare believe them! Stay calm, stick to your plan, and follow all the above guidelines. This is not over until it’s over!
If you want to read more about exit strategy, I recommend Warden’s post. You will also find more links in the compilation of all DD in r/GME.
What did we learn?
- As always, the best an ape can do is to HOLD!
- If you skipped it, scroll up a little and read the part with all those big diamonds!
🚀 Thank you for reading (or at least scrolling) to the bottom!
TADR(Too Ape; Didn’t Read):Buy and HODL! 💎🤲🏼🦍🚀🌙