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We have also estimated the point at which a billion-dollar fund (fully into cash!) would run out of cash to post margin (this is the implied bust price). The closer it is to the bottom — zero — when you short it, the more shares you can buy with the same money, and ''the more amplified is the effect should the shares tick up''. Can we imagine GameStop going to 700? ''Super'' unlikely — but ''not out of the question''. Can we imagine $7,000 though, or $70,000? What would [[Homey don’t play that|Homey]] say about that? | We have also estimated the point at which a billion-dollar fund (fully into cash!) would run out of cash to post margin (this is the implied bust price). The closer it is to the bottom — zero — when you short it, the more shares you can buy with the same money, and ''the more amplified is the effect should the shares tick up''. Can we imagine GameStop going to 700? ''Super'' unlikely — but ''not out of the question''. Can we imagine $7,000 though, or $70,000? What would [[Homey don’t play that|Homey]] say about that? | ||
'''Third''': There ''is'' a hard practical limit to how far any [[Short sale|short]] investor can let a losing short position ride. This is the ugly side of the [[limited recourse]] investment vehicle: you only have so many chips in the casino. While you can continue to fund [[margin call]]<nowiki/>s, you can keep your position on and ride it out. But only while you have free cash on hand. Of you run out, no-one is going to lend more to you, however convincing your proposition. And raising new capital is the same as crystallising your loss on the position because it dilutes your existing investors into oblivion. The new capital will come in at the existing [[net asset value]] per share of the fund — your ''[[mark-to-market]]'' [[NAV per share]] is pretty much zero. Your new investors are going to require a ''helluva lot of shares''. And really, why | '''Third''': There ''is'' a hard practical limit to how far any [[Short sale|short]] investor can let a losing short position ride. This is the ugly side of the [[limited recourse]] investment vehicle: you only have so many chips in the casino. While you can continue to fund [[margin call]]<nowiki/>s, you can keep your position on and ride it out. But only while you have free cash on hand. Of you run out, no-one is going to lend more to you, however convincing your proposition. And raising new capital is the same as crystallising your loss on the position because it dilutes your existing investors into oblivion. The new capital will come in at the existing [[net asset value]] per share of the fund — your ''[[mark-to-market]]'' [[NAV per share]] is pretty much zero. Your new investors are going to require a ''helluva lot of shares''. And really, why wouldn’t they just use their money to put on their own short position? As per the table above, that is a much safer bet. | ||
'''Fourth''': Fully-paid long investors — in this case, internet denizens and Redditor day-traders — do not have this natural constraint. They are borrowing to invest; as long as they don’t need the money to pay their rent — which they may well do — they can sit indefinitely. | '''Fourth''': Fully-paid long investors — in this case, internet denizens and Redditor day-traders — do not have this natural constraint. They are borrowing to invest; as long as they don’t need the money to pay their rent — which they may well do — they can sit indefinitely. | ||
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'''Seventh''': The regulators are going to want to do ''something'' to ''someone''. It’s hard to see how that could be some HODLer on Reddit. Nor the Hedgies: they were just doing the deep-state, Pizzagate stuff all [[hedge fund]]<nowiki/>s do. A few market infrastructure players look to be volunteering to take the rap by strangling long interest amongst the day-traders, while the lucky old deep-state-connected hedgies carried on with unfettered access (barring the short-tick requirement, which meant they couldn’t short on a down-tick). But the sense that the market infrastructure guys were acting out of the same good intentions that pave many a road to hell: some little people will, eventually, get hosed here, and they could say they were intervening to stop that — took on a rather greenish cast when it turned out that the retail platform’s biggest [[market-maker]], and [[Payment for order flow|payer of an enormous amount for order flow]], was closely associated with one of the significant short positions. Now, there is no allegation of actual dastardly behaviour — these organizations have impermeable [[Chinese wall]]s, but still — it ''doesn’t look great''. | '''Seventh''': The regulators are going to want to do ''something'' to ''someone''. It’s hard to see how that could be some HODLer on Reddit. Nor the Hedgies: they were just doing the deep-state, Pizzagate stuff all [[hedge fund]]<nowiki/>s do. A few market infrastructure players look to be volunteering to take the rap by strangling long interest amongst the day-traders, while the lucky old deep-state-connected hedgies carried on with unfettered access (barring the short-tick requirement, which meant they couldn’t short on a down-tick). But the sense that the market infrastructure guys were acting out of the same good intentions that pave many a road to hell: some little people will, eventually, get hosed here, and they could say they were intervening to stop that — took on a rather greenish cast when it turned out that the retail platform’s biggest [[market-maker]], and [[Payment for order flow|payer of an enormous amount for order flow]], was closely associated with one of the significant short positions. Now, there is no allegation of actual dastardly behaviour — these organizations have impermeable [[Chinese wall]]s, but still — it ''doesn’t look great''. | ||
'''Eighth''': This | '''Eighth''': This isn’t just “geeks versus masters of the universe”. It is ''humans versus [[algorithm]]s''. And the algos are ''losing''. This wasn’t in the [[playbook]]. The hedge fund industry has the analytical firepower of a fully operational Death Star. They can set their heat ray on an unsuspecting planet and blow it to smithereens. But they didn’t bank on a little planet full of cuddly, bear-like, tree-dwelling Redditors ''behaving in an unexpectedly concerted way''. Algos can cope with dumb, random, Gaussian behaviour — even the odd tail event. But the retail markets isn’t meant to hit back with co-ordinated, targeted strikes on weak points. This is predatory, fast learning, velociraptor carry-on. The retail market is meant to be a brontosaurus. | ||
{{sa}} | {{sa}} | ||