$GME – The Mother of All Short Squeezes (MOASS) Thesis. Summarized and broken down in a way for all (or most) to understand. We are in the end-game everyone, and this rocket is taking off with or without you. If you want to understand that whole “GME thing” this is my best shot at explaining it

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Personal note

First, please do not buy reddit coins to award this post (if you find it worthy of exposure, upvote it and share it with anyone you wish to inform. Thanks to everyone who offered feedback and helped promote the original draft of this post, getting it listed on the 5/24/21 r/TopPostOfTheDay.

Second, I want to thanks the mods of r/superstonk, especially the “Everything” OGs, u/redchessqueen99 and u/rensole for creating this sub and working tirelessly to turn it into the one of the strongest communities on reddit.

Third and finally, I am of Norse ancestry and love coming up with catch phrases that I later translate to Norske (Norwegian). I stamp this post with the below:Hedgies, velkommen til helvete. Vi kommer for tårene dine.Intro

This post will give a relatively simplistic breakdown of the current situation and landscape of GameStop Stock, or GME as it is known on the New York Stock Exchange. It will summarize the theory that it will soon reach astronomical levels during a market, or the Mother of all Short Squeezes (MOASS) Thesis.

The core intention of the post is to summarize the MOASS Thesis for investors who are not fully up to speed on it, as well as those who are newer to the stock market in general, and are interested in investing. That being said, this writeup is NOT intended to serve as a source of proof/evidence behind this theory, and it operates under the assumption that the theory is valid and that the conditions it is built on are met. For those who intend to dig further into the evidence supporting the theory, there is a massive amount of research and due diligence that has been performed and documented around this theory that can be found here, though it is recommended to use this post to get a basic understanding before digging into the Due Diligence.Elevator Pitch

Certain participants in the stock market (market manipulators) have taken advantage of a loophole in regulation that have allowed them to “short sell” more shares of a stock than theoretically should exist to be publicly traded (somewhere between 2 and 4 times this amount). This technique called “Naked Shorting” (or “fraud” if you ask the folks over at the SEC), and can be used to bankrupt companies or get their stock delisted, a result that allows all of the proceeds from short-selling to actualize as pure, untaxed profit.

This technique has backfired, and these participants must buy these shares back on the open market. Unfortunately for these entities, an army of retail investors own the synthetic shares that have been produced via naked shorting, and they are not obligated to sell them at a specific price (or at all), which puts the short sellers in a very very bad position).

Supply and demand rules the market, and supply is running out, while demand is skyrocketing. If you don’t believe me, just look at the chart of GME which our DD (Due Diligence/research/analysis) has been forecasting for a while now. The below pattern has only preceded massive spikes in price, but this time, those on the other side of the trade are going to have a much harder time suppressing the price like they did in January and March. Thanks to the activity on 5/25, we have entered the end-game.

The MOASS is beginning.

r/Superstonk - $GME - The Mother of All Short Squeezes (MOASS) Thesis. Summarized and broken down in a way for all (or most) to understand. We are in the end-game everyone, and this rocket is taking off with or without you. If you want to understand that whole "GME thing" this is my best shot at …

Important terms to know before getting into the “Explanation”

These terms are key to understanding the theory and speculated value of a GME investment. Hyperlinks to Investopedia, “the world’s leading source of financial content on the web”, have been included for most market terms and concepts and it is recommended to check them out if they are not clear. We will be breaking down some of the more complex terms and concepts within the post and framing them within the context of GME.Long Position / Buying/Selling Stock

  • When an investor buys a stock they are considered long on it
  • In other words, holders of long positions have a positive number of shares
  • To close a long position the owner would sell their shares on the stock market

The basic idea behind obtaining long position is:

  1. Buy the stock
  2. Hold it until the price of it increases to a desired amount
  3. Sell it for a profit

When people think about buying and selling stock they are generally talking about opening and closing long positionsShort Position / Shorting/Covering Stock

  • When a short seller shorts a stock they hold a short position on the stock. This is essentially the polar opposite of a long positions (kinda)
  • Investors with short positions effectively are in debt or owe the number of shares that they have shorted and can be considered negative on the stock
  • To close that position, short-sellers must buy a number of shares equal to the size of their short position (buying to close a short position is known as covering)
  • Short positions must be reported to regulators (unlike naked short sales)

The basic idea of obtaining a short position on a stock is:

  1. Borrow a share owned by a lender
  2. Sell the stock that was borrowed
  3. Gaining the cash based on the price it was at the time it was “shorted”
  4. Pay interest as a percentage of the stock’s value
  5. Since this is a percentage the cost of interest increases if the stock’s value increases
  6. Hold the position until the price has dropped to a desired price
  7. Buy the stock on the open market
  8. Ideally the stock is bought back at a lower price than originally borrowed for so the investor can pocket the difference
  9. Return the share back to the lender

The Float

The Float, or Floating Stock is the number of shares of stock that are available to be publicly traded (the number of Outstanding shares minus the amount of Restricted shares that are owned by insiders).

  • In theory, the number of shares owned by retail investors and institutional investors cannot exceed the float
  • SPOILER: GME is believed to have ownership amounting to 200% to 400% of the float if not more due to a something called naked shorting, which is a key part of the thesis that is covered more later
  • GME’s float total is currently ~56.89 Million shares
  • It is important to note that institutional investors own ~25M-30M of the floating stock
  • If institutions were to hold during MOASS (not a guarantee though many are expected to), then the amount of shares publicly would be somewhere around ~25M-30M. This means there would be even less supply when the short sellers finally have to cover

Retail Investors

  • Retail Investors, also known as individual investors, are your average investors (not a company or organization)

Institutional Investors

  • Institutional Investors are organizations that invest on individuals’ behalf
  • Examples of Institutional Investors
  • Endowment Funds
  • Commercial Banks
  • Mutual Funds
  • Hedge funds
  • Pension funds
  • Insurance companies

Market Makers

I’d encourage you to read the Investopedia entry for them for more clarity

  • Market Makers are very different from “Investors” and are a bit harder to explain but basically are there to increase liquidity in the market
  • When you buy and sell stock those trades are often going between you and a market maker
  • Market makers get “special rules” that enable them to keep liquidity in the market when there is low liquidity
  • Naked shorting is one of the options Market Makers have when navigating a trade that other investors do not have

Naked Shorting

  • Naked shorting effectively allows a Market Maker to short a stock without having a borrowed share like normal short selling
  • The result is similar to a short sale
  • Naked short sales do NOT have to be reported the same way as normal “Short Sales” and can be “hidden”
  • GME is expected to be shorted around two to four times the float, despite the fact that Short Interest only accounts for ~20% of the float, meaning most of the shares are shorted via naked shorting
  • This type of trade illegal outside of specific situations involving Market Makers
  • Due to a loophole and lack of oversight by regulation, Naked short selling can be used to manipulate the price of certain stocks
  • Naked shorting was targeted for tighter regulation during the financial crisis of 2008 but enforcement has unfortunately not been effective in preventing it from manipulating the market

Synthetic Shares

  • Synthetic Shares are the financial instruments that get produced by Naked Short sales
  • Often referred to as “Counterfeit” shares (though they may be called this they are just as legitimate as a non-synthetic share)
  • Synthetic shares entitle the owner to all of the same rights as an investor owning a non-synthetic share
  • Cases where there is an excessive amount of synthetic shares point to the possibility that a stock is being abused or manipulated

Failure to Deliver

  • FTDs occur when a buyer of a stock ends up not having the money to purchase the stock that they traded for OR, when a short seller does not own the stock at the time of settlement
  • FTDs are one of the main check-balances to naked shorting, so very high amounts of Failures to Deliver are indicative of this
    • Spoiler: GME and AMC have tons of FTDs reported

Margin

  • Margin is basically credit that that an investor can use to buy more stock
  • When you buy on margin you must stake the assets you have already purchased with your own cash as collateral
  • The amount of Margin you can have depends on the value of your collateral
  • The value of your collateral and cash but meet the margin requirements in order to continue to buy on margin
  • Keep in mind the value of your collateral can change if the price goes up or down and if the value of your collateral/cash drops below the margin requirement you will received a Margin Call Another way to think about it:
  1. Imagine I have $1,000 in stock
  2. You obtain a personal loan for another $1000
  3. To get the credit you stake your $1000 in stock (if you default it goes to the lender to cover your debt)
  4. You buy $1000 more stock with that loan (you now own $2000 in stocks, half in cash half on margin)
  5. You will pay interest on the $1000 on margin but if your investment makes more money than the interest then you are still profiting
  6. If your investment turns bad (lets say the price of your stock falls 50% and you are left with $1000) your lender can forcibly close out your positions (everything you bought in cash and staked as collateral along with what you bought on margin so that they can get the $1000 they loaned you back)

Margin Call

  • Margin Call is a notice indicating you have a specific amount of time to deposit enough of your own funds to meet your margin requirement (if you cannot meet the requirement the lender is entitled to sell all of your holdings to recover what you borrowed

Examples:

This is a slightly complicated scenario that can be a little hard to follow. Give it a few reads if it doesn’t make sense the first time, but basically, Margin is a credit line that you can use to buy more assets (effectively a loan backed by collateral and cash in your own account). If you buy assets with it, you have to pay back what you borrowed, whether the value of your investment goes up or down (if the investment goes up in value, you make more than you normally would, but if the investment goes down in value, you lose more than you otherwise would have without margin).

This gets even more (or less maybe) complicated when you have short positions AND long positions, like most institutional investors. To have short positions, I still need to have margin, but I do not need to use it to buy stocks, It can act as a buffer if I have a short position on a stock that is increasing in value (with a short position, if the price of something I short goes up, I am losing money), and if it gets too high, it can run against my margin line, causing a margin call.

Positive Margin Example (Long Positions only):

  1. Imagine I have $1000 in stock XXX (let’s say 10 shares worth $100 each)
  2. My broker may lend me margin credit line equal to the value of my assets (so $1000 in margin), and let’s say they give me a margin requirement of $800, meaning that the value of my non-margin assets (the ones I bought with my money) must be above $800 in order to keep using margin (so as long as stock XXX stays above $80 a share, then I will not get a margin call for being below the requirement)
  3. I then choose to use the margin, buying 10 more shares of stock XXX for $100 each, so I now have 20 shares of stock XXX, valued at 100$ a piece
  4. If the price of stock XXX goes up to %25 per share, and I sell all 20 shares, I just profited $500 (+$25 on 20 shares)
    1. In this case, closing the position clears me from the margin debt, as I am no longer using it in an open position
    2. If I had not used margin, I would have only walked away with $250 in profit ($25 per share on 10 shares), but instead I made $500, and paid back the credit, plus a little bit of interest.
  5. Yay.

Negative Margin Example (Long Positions Only):

  1. Imagine I have $1000 in stock XXX (let’s say 10 shares worth $100 each)
  2. My broker may lend me margin credit line equal to the value of my assets (so $1000 in margin), and let’s say they give me a margin requirement of $800, meaning that the value of my non-margin assets (the ones I bought with my money) must be above $800 in order to keep using margin (so as long as stock XXX stays above $80 a share, then I will not get a margin call for being below the requirement)
  3. I then choose to use the margin, buying 10 more shares of stock XXX for $100 each, so I now have 20 shares of stock XXX, valued at 100$ a piece
  4. If the price of stock XXX goes down %25, bringing the value per share down to $75 a share, the value of my total position is now $1500, and the value of my non-margin assets is $750, which is below the margin requirement (keep in mind, I borrowed $1000, so that is still the amount I have to pay back)
  5. My lender will give me a margin call, indicating I have two business days to deposit 50$ into my account in order to meet the margin requirement
    1. If I have the cash to deposit the extra $50 would take my assets to $800 ($750 in stock XXX + 50$ cash)
      1. If the price of stock XXX recovered to above $80 per share, it could also satisfy the requirement
    2. If I do not have the cash to deposit, then I am in trouble, as after two days, they are allowed to liquidate (sell) the assets I bought with my own money, as well as the assets I bought on margin
      1. Let’s say this happens, all my borrowed assets are sold first to cover my $1000 loan (since the price of stock XXX was only $750, it only covers $750 of my $1000 margin line
      2. I now have $750 left in assets of Stock X, but I still owe money from margin, so my lender is entitled to sell $250 work of my shares in order to get their full $1000 back
      3. I am now left with $500 total ($750 in 10 shares of stock XXX – $250)
  6. Not Yay

Negative Margin Example (Long Positions and Short Positions):

THIS IS THE RELEVANT ONE TO GME

  1. Imagine I have $1000 in stock XXX (let’s say 10 shares worth $100 each)
  2. My broker may lend me margin credit line equal to the value of my assets (so $1000 in margin), and let’s say they give me a margin requirement of $800, meaning that the value of my non-margin assets (the ones I bought with my money) must be above $800 in order to keep using margin
  3. Instead of using the margin to buy more, I instead short 10 shares of stock YYY which is at $50 a share currently (giving me $500 in extra cash), which I use to buy 5 more shares of stock X
    1. I am now long 15 shares of stock XXX valued at $1500 and short 10 shares of stock YYY valued at -$500 (negative $500) for a net value of $1000
    2. No margin is actively committed to open positions, and I am still using my $1000
  4. Now, lets say a short squeeze happens involving stock Y, causing the price to skyrocket to $200 per share
    1. My short position is now -$2000 (10 shares of -$200 each)
  5. My net account value is now $-500 ($1500 – $2000) which is now using my margin, and because my account’s value is no longer above $800, I no longer meet margin requirements so I get a margin call
  6. If I cannot balance my account, the lender will liquidate my $1500 in stock XXX in order to pay the -$2000 I owe, leaving me with -$500 left in debt
    1. I have now defaulted, as I cannot pay the $500
  7. Now that I have defaulted, the lender who gave me margin owns my short positions, meaning they are now short whatever was left
    1. The lender can now navigate the short positions however they want (they can hold them and hope the price goes down, and cover to close them, or they can close them immediately, costing them the whole $500 I still owed)
  8. GUH! (Translation if you are not WSB: Ah @#$%)

Short Squeeze

  • Short Squeeze is a market event that occurs when there is a large short position on a stock whose price rapidly increases higher than expected, normally due to a catalyst
  • During the short squeeze, the losses of those who have short positions continue to increase higher it goes
    • Since they owe shares, the cost to cover their position increases depending on how high the price goes (there is theoretically no limit on how high a stock can go)
  • As market participants who are short on the stock buy to cover, supply decreases and demand increases, causing the price to increase even more rapidly
  • While short sellers are scrambling to cover their positions, the rapid price change may entice investors who are not short on the stock to buy it in order to make a quick profit
    • Again, lowering supply and increasing demand

The Mother of All Short Squeezes (MOASS) – Explanation

Now that we have gone through the many important terms, we can get to the theory behind MOASS.

Due excessive short-selling and naked shorting of GME by certain market participants (primarily large hedge funds and market makers), retail investors and long institutional investors collectively own a number of shares that exceeds the the float. The amount of shares that are currently owned is theorized to range roughly between 200%-400% of the float if not more, meaning that 100%-300% of the float has a corresponding short position (mostly naked shorts). For context, most stocks generally have around 1% Short Interest, and 10%-20% short interest is considered to be excessive, let alone over 100% of it.

Short sellers must eventually close, or cover, their short position

  • The only way to do that is to buy the shares owned by the investors who are long
    • in the meantime Short-sellers are paying interest on that short position until it is closed proportional to the cost of the shares, which bleeds their capital over time
  • Unfortunately for the short sellers, the owners of the shares ARE NOT obligated to sell their shares.
    • The short-sellers, however, ARE obligated to buy in order to close their position (or else keep paying interest)

So what happens if no one is selling the shares they are “long” on, but short sellers need to buy them?

  • Supply and Demand
    • With very little supply and high demand, the price of a stock can increase far beyond its fundamental value
    • If short sellers receive a margin call due to no longer meeting their margin requirement and are unable to meet it in time, their assets will be forcibly liquidated by their lender in order to pay back the margin, as well as close out the position if the borrower defaults

If you are wondering why an organization would abusively short a stock like this if they eventually have to cover their positions:

  • If a company goes bankrupt or gets delisted from the stock market:
    • The short sellers DO NOT have to close the position
    • All of the proceeds from the short sale effectively disappear from their books
    • They do not even have to pay taxes on this profit
    • This was the fate of Toys’R’Us

Short positions amount to the total number of long positions minus the float, meaning (based on the theorized range) that somewhere between ~56-170 Million shares will need to be bought in order to close all short positions

  • It is expected that the members with short positions (hedge funds and market makers who have been naked shorting the stock) will be unable to cover their short positions, resulting in a situation where their lenders, all the way up to the clearinghouse (DTCC) will have to sort out the positions
  • If the DTCC/NSCC is forced to unwind the positions, it is widely believed that they will rapidly cover short positions at whatever price they are available for (this is how their systems are said to handle a member default), liquidating whatever assets are necessary from the defaulting member

The condensed explanation:

  1. GME is over-shorted
    1. The mainstream media reports that this is not the case, however, research performed by retail investors indicates the opposite
      1. The market drops in stocks and cryptocurrency in May correlate with actions indicative of margin calls
    2. GME is not alone in being over-shorted, though it is the most damaging short position among short sellers
    3. Short-selling inherently reduces the value of a stock, and if a stock falls to 0 (this destroys the ability to raise capital), that company may go bankrupt, preventing those with short positions from ever having to pay for their short sale (these proceeds are also untaxed)
  2. GME has steadily been increasing in price, which is causing more losses every day for short sellers
    1. As GME price increases, short-seller’s losses increase, causing panic to close their positions or else go bankrupt
    2. The first GameStop coin was apparently minted on 5/25/21, which may spell absolute disaster for the short sellers (read about Overstock Short Squeeze if you want to see why)
  3. Short sellers must buy shares from holders who are not obligated or willing to sell creating a crisis of supply and demand
  4. Very low supply and very high demand causes the price to skyrocket
    1. There is theoretically no limit on how high a stock’s price can go
  5. If short sellers are unable to meet the requirements necessary during a margin call, they default, forcing their lender to be obligated to pay the leftover debt
  6. If the lender defaults, ownership of the chain goes up to the DTCC (more specifically, the NSCC who is a subsidiary of DTCC who handles securities like stocks)

Final thoughts…

This is the GME MOASS thesis. GME is a stock that stands to hit an unprecedented price point due to the fact that manipulators of the market have failed to bankrupt GameStop thanks in huge part to the Legendary Keith Gill AKA u/DeepFuckingValueRyan Cohen, and all of the GME investors who took part in this saga. It may not be today, this week, or even this month, but one day soon, these toxic participants have no choice but to buy the stock to close out their short positions.

In some schools of thought, it is thought that these participants over-estimated how “reasonable” retail investors can be (who could be dumb enough to hold a stock as it fell from almost $500 to $40?). In truth, these manipulators didn’t understand the demographic they were fighting with. Gamers are some of the most stubborn people on the planet. These are individuals who will sink tens of thousands of hours into the same video game because “they just like it”. Well, “we like the stock”, and to us, the adversaries on Wall Street just are just another “boss”. We may have needed to retry a couple times, but we always win eventually. On top of that, they pissed off reddit, and under no circumstances, should you ever piss off reddit.

At this point, if you are still reading this, know that it is up to you to decide your next move, whether that is to do some due diligence of your own, walk away, or say screw it and buy a few (or a lot of) shares just in case we are right. Many of us have set our floor (minimum amount of acceptable gains) at $20,000,000 per share, and you might think that is crazy, but in truth, we know we can pick our own price if we hold long enough. We don’t care if anyone else buys or not, because we know the outcome is inevitable. Time is running out for the toxic market participants involved, and even the news can’t hide that we are on the brink of a massive market event that will ripple through the entire global financial system, and we will probably never see an event like this again in our lifetime.

Looking for brokers that won’t be like RobbingHood and screw you over during MOASS?

TL;DR: This is a fight Wall Street, Shitadel, Melvin Capital, and ever other toxic party is not going to win against the “dumb money”. Chances are this will truly be “THE MOASS“, meaning there will never be another like it in our lifetime (or ever). While the conditions in play (the ability for big money to brutally manipulate the market) enabled what may end up being the greatest transfer of wealth in history, actual reformation to prevent a landscape like this from forming again is probably best long term (I say this as a pragmatist, and am honestly very far from an idealist). If you want to influence reform, Buy, Hold, Vote. If you are just here for the tendies, Buy, Hold, Vote.Hedgies, velkommen til helvete. Vi kommer for tårene dine.Hedgies, welcome to hell. We come for your tears.💎🙌 🚀🚀🚀

Feel free to comment on this (we do not care about your position on this, we hate spam, fud and shills)