EndGame part 4: The Saga Continues : wallstreetbets

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EndGame part 4: The Saga Continues : wallstreetbets

That is an extension of my DD sequence on GME. When you haven’t learn them and have time, they may present some background on my earlier predictions, a few of which have already come true. On this publish, I’ll share my ideas on what I feel is occurring, plus some tricks to handle your positions and exits.

TL;DR: Shorts are in however possible need to get out. And so they need to get out at the most effective worth potential. See suggestions for managing positions.

Earlier Necessary Posts

  • EndGame Half 1 (DTC Infinity) lined the quick positions, the float, and potential snowball impacts of accelerating costs, and argued that a part of the explanation that shorts haven’t closed was that it was just about inconceivable for shorts to shut

  • EndGame Half 2 lined Cohen, truthful market cap evaluation, and potential buyers, wherein I talked concerning the superb mid-to-long time period potential for GME.

  • HEY SEC, when you’re studying please learn this one – After the Citron tweet, I shared this fan fiction on what appeared like blatant market manipulation by shorts on the day of the tweet, and provided some training on strengthening your place. This one obtained buried and is value studying.

  • EndGame Half Three lined the gamma squeeze, potential shady techniques by MMs, and a few suggestions for staying secure.

What’s occurring with the worth?

We’re nonetheless gamma squeezing

Many media retailers are reporting this as a “quick squeeze”. They’re solely partially proper, as if Melvin isn’t mendacity they’ve already been squeezed out.

Nonetheless, the fact is thus far we’ve been Gamma squeezing – repeatedly – and a few shorts have been casualties alongside the best way.

See this publish for a deeper rationalization, however the essence of it’s that market-makers have to purchase shares to hedge the calls they promote. The extra calls individuals purchase, the extra shares they MMs must hedge with. As I defined partially 1, GME has extremely low liquidity, i.e. there’s waaaay fewer actively traded shares than what shorts want to purchase to cowl with, after which whenever you get plenty of individuals shopping for calls and shares within the sizzling new inventory it simply removes extra availability from the market.

In consequence, when MMs purchase shares to hedge, it strikes the worth of the underlying up. Mix that with the shopping for strain of individuals piling right into a inventory climbing 100% a day, shorts getting liquidated, and it’s an ideal storm.

At the moment, GME closed at $347 (earlier than the after market selloff, however i’ll get to that quickly).

320 calls had been added yesterday. Equally, when 115cs had been added we squeezed to >115 in two days. Identical story with 60c’s and so forth.

Keep in mind this commentary from EndGame half Three on Friday’s worth motion:

Discover how the inventory dropped from a excessive of $75 on Friday to beneath 60 – the very best expiring SP for the 1/22 choices, and stayed tight in vary for the remainder of the day*. Now, for compliance causes, MM are required to be impartial by EOD, so 20 minutes earlier than shut, MMs had to purchase again all their quick positions, which led to the robust shut above 60.*

All this led me to imagine that the actual truthful market worth for GME was above $65. With out the market makers interference, GME would have closed increased.

Now, what occurred at present? We opened at $351, greater than double the earlier shut of $145 and after the morning revenue taking, we squeezed to a excessive of $372 as MMs furiously tried to hedge the 320 calls they bought you the day earlier than for peanuts.

See, the factor is, Kenny G doesn’t wish to lose cash. The magical methodology Citadel’s market makers generate profits, is that they promote you name supplying you with the appropriate to purchase shares at a sure worth, say $320, for the good worth of $10/share (for instance). Now, so long as Citadel’s MMs should purchase all of the shares they’ve to provide to you for lower than $320, that $10 is free cash. Nonetheless, when the underlying strikes too quick, the MMs have to purchase shares for greater than $320, and Kenny G doesn’t like that.

At the moment was a shock to the MMs that bought all of the 320cs yesterday. A six-sigma occasion after a six-sigma occasion after a six-sigma occasion. But once more, inside days (a day?) of providing new, increased strikes – each name choice ever bought was within the cash, earlier than that they had an opportunity to adequately hedge.

https://preview.redd.it/cq5wy45433e61.png?width=936&format=png&auto=webp&s=0c75a1e1a6e3808b54bafc646e2e6a7f29ca7cc3

So, simply as on Friday, if the worth obtained too excessive above $320, market makers dug into their bag of methods to start out promoting it off. (Individuals taking earnings right here helped too.) Nonetheless, a number of occasions, when GME went beneath $300, MMs took their alternative to hedge the 1/29 calls. So, simply as earlier than, we traded in a decent vary across the highest strike.

My conclusion from this motion the primary time was that GME’s truthful worth was being actively suppressed, and it proceeded to 5x within the subsequent few days. There’s a chance we’re in a replay and can see extra upward motion on delta hedging alone.

The purpose of that is: I feel shorts are feeling the squeeze, for certain, reporting large mark-to-market losses**.** However I imagine the shorts are nonetheless in.

Shorts are nonetheless in

As of Wednesday morning, Ortex was estimating a quick curiosity of 65M shares, down from 71M shares the day earlier than.

https://preview.redd.it/ze8wx15633e61.png?width=932&format=png&auto=webp&s=7a034dbb3c54509c6267f20c4122ecdf3f6cf4bc

When you’ve learn my Half 1 (DTC Infinity), you’ll hopefully recall my thesis that there are literally lower than 24M shares out there, and subsequently that it will be nigh inconceivable for shorts to shut. Since then a slew of recent buyers have piled in to purchase and maintain GME, from little guys like us to big-ass-whales like Blackrock growing their holdings to 13% of GME.

So what? I feel the out there shares for shorts to purchase are right down to underneath 20M, and so they have to purchase 65M shares to shut. Shorts have barely begun to cowl. We’ve solely been growing the price of their exits!

Now, let’s discuss Melvin Capital. I cherished watching Chamath defend retail buyers and argue towards the institutional leveraged shorting that obtained us right here within the first place, however I additionally realized one thing attention-grabbing that helped me perceive how the 140% quick curiosity had within the first place, and the way the unwinding could go.

At 2:10 Chamath says “Gabe Plotkin is without doubt one of the giants of our period, however on the finish of the day, what occurs is that his trades are copied by umpteen different hedge funds that observe alongside

This tells me 2 issues:

  • A whole lot of hedge funds (possible Maplelane, D1, Viking, Level72, and extra) adopted one another into this quick. Very similar to retards like us get behind good DD shared within the open, these institutional retards obtained along with their cigars and golf golf equipment behind closed doorways and determined collectively to go in collectively towards GME.

  • If Melvin is basically out, it’s unlikely the opposite funds are going to need to keep in, lest they be in contrast poorly to Melvin if GME continues to go towards them. The opposite shorts need out.

Chamath additionally tells us that prime brokers (the brokers that hedge funds use) are seeing “the largest 4-day degrossing from hedge funds they’ve ever seen”.

Once more, the issue is – there simply aren’t sufficient shares. Shorts have dug themselves an enormous grave by shorting extra shares in existence and persevering with to quick whereas Cohen grabbed up 9M shares, establishments added to their positions, and retail merchants piled in.

For boomers like this tard that may’t perceive why the worth is so excessive – return to Econ 101, provide and demand bitch.

It’s costing shorts unimaginable $ to carry their positions

Right here’s all of the methods shorts are shedding cash.

  • They pay borrow charges to mortgage the inventory. At one level at present, the GME inventory borrow charge hit 250% for brand new borrows. At $300/share that’s $2/day. That doesn’t sound like a lot proper? What when you shorted at $50?

  • The quick place on GME has ballooned to $25BN from a low of $1B. The borrow charges are utilized to the newest closing worth, not the worth you shorted at.

  • Funds are paying curiosity charges on the margin they’re utilizing for the quick

  • And oh yeah, GME’s up like 800% in 5 days.

Soiled techniques proceed

At this level, I feel “THEY” have found out that gamma squeezes are completely destroying hedge funds. So what do they do?

  • THE BIGGEST DIRTIEST TACTIC OF ALL – they solely permit you to promote, not purchase. HEY SEC, WHY ARE SHORTS STILL ALLOWED TO SHORT WHEN LONGS ARE NOT ALLOWED TO BUY. WHY ARE INSTITUTIONS ALLOWED TO COLLUDE?

    • That is insane. Funds, prime brokerages, and market makers all stood to lose cash so that they disabled buying and selling of GME on account of “volatility”. Citadel invests in Melvin capital. Then brokerages shut down shopping for!

  • Brokerages down

  • Choices not loading

  • Limit retail buying and selling on GME

https://preview.redd.it/is4qn8n733e61.png?width=512&format=png&auto=webp&s=741f80fc182e27584954691ebb581ffee15f86ef

  • This can be a direct protection towards extra gamma squeezes and an assault on retail buyers, giving establishments a definite benefit.

  • HEY Shortsellers Enrichment Company – how is it okay for Citron to purchase 1000’s of places minutes earlier than their tweet and the way is it okay for prime brokers to provide hedge funds 10-100x leverage, however the little guys can’t have greater than 100 choices complete?

  • Extra quick ladder assaults. Have a look at after-hours buying and selling on GME – a fast quick ladder assault throughout low-volume buying and selling with the intention to convey the worth down.

  • When you use cease losses on GME and depart them on, you’re going to get stop-loss hunted.

Ripple results of the squeeze

  • These hedge funds which might be quick GME, are additionally quick different equities like BBBY, AMC, and so forth.

  • These hedge funds are additionally lengthy different shares with leverage, so the ONLY means they’re staying alive and never overlaying their shorts, is that they’re lowering their lengthy leverage. This implies selloffs within the broader market as they must shore up their margin necessities towards the huge quick squeezes of their portfolios.

I imagine we’re at a tipping level

  • I don’t imagine shorts have actually lined but. They’ve defended by getting capital infusions and lowering their lengthy leverage. I.e. they’ve begun liquidating lengthy positions.

  • If GME climbs extra, they are going to be compelled to cowl and liquidate.

Issues to watch out about

As you may see, that is no simple win. Along with the solutions I wrote about on this publish, right here’s some issues to watch out about.

  • There are threats to halt buying and selling. Shares are secure, they don’t expire. Calls could be destroyed by techniques like shopping for halts.

  • Watch out about swapping ITM requires OTM calls: it may be tempting to trade-up your choices for increased return, however be aware of the delta impression. You may very well be driving the sale of shares by MMs whenever you don’t imply to. For instance, when you promote a .5 delta name for two .2 delta calls, that’s web discount of 10 shares that MMs have to carry lengthy as leverage.

  • Watch out about being quick any calls this week: Not solely do you restrict your upside (which is dumb within the prospect of a squeeze), you could possibly find yourself in a nightmare state of affairs. A name that ends OTM on Friday may find yourself ITM after hours when you didn’t promote it, and you could get assigned whereas the underlying continues to go up. Shut spreads in case your quick legs are deep ITM until you need to threat early project and excessive hard-to-borrow charges.

  • There are just a few different soiled techniques shorts can play. I’m not particularly going to share them right here as a result of I don’t need to give the concepts circulation, however

    • Select your individual restrict sells based mostly on private promote factors. Don’t copy others and don’t attempt to be memey. Make your individual choices.

    • Cease sharing your positions publicly. I do know that is anti-wsb, and I feel sharing them is nice for this neighborhood, however within the case of GME it’s an assault vector for you.

  • Watch out of holding weeklies till expiration. Keep in mind the a number of buying and selling halts? What if buying and selling will get halted on Friday at 2pm and doesn’t resume for the remainder of the day? All of your 1/29 calls would expire nugatory. Relying in your dealer and your money positions, possibly even your ITM ones. Roll (or promote, when you’re taking earnings) your weeklies nicely earlier than expiration.

  • Watch out about shopping for on margin. Brokers are quickly growing margins. When you purchased on margin with 2:1 leverage, and the inventory went up 100%, you’d be in margin name even and not using a margin change. If the dealer strikes margin towards you, you’ll get to margin name sooner.

  • Don’t guess greater than you may afford to lose. I’ve been in GME lengthy sufficient to know that simply whenever you assume going up is a certain factor (bear in mind final Monday with the quick sale restriction?), you could be stunned by a brand new trick. When you guess all of it on weeklies abruptly, you could not be capable of recuperate from being incorrect on the timing. Take into account longer expiry or spreading your purchases out. I’ve held by means of a number of 30-40% drawdowns within the underlying; and held by means of a 50% drawdown at present, so you could be prepared for the volatility.

  • Be careful for cease loss hunts. It’s widespread follow for shorts to hunt for cease losses for affordable shares. When you’ve set a cease loss, be actually certain about it.

  • Don’t promote on dips. You’re solely serving to the shorts. If you could promote to take earnings, promote when it’s heading up. Promote excessive, not low retards.

  • Save dry powder to purchase on dips. Dips manufactured by shorts are shopping for alternatives. Benefit from of us with paper arms to seize shares at low factors. GME has unimaginable each day volatility. Set a low restrict purchase and simply await the order to fill. Have endurance when shopping for.

This isn’t monetary recommendation; do your individual DD. I’m holding over $1M in shares and calls. I AM NOT SELLING WHEN THE BUYING MARKET HAS BEEN REMOVED. YOU ARE BOUND TO NOT GET A FAIR MARKET PRICE.

Replace New ortex knowledge exhibits 51M quick curiosity. So the overlaying has begun.

Replace 2: what you might be seeing within the worth drops is probably going the gamma squeeze in reverse. Persons are rightly promoting their quick time period calls, so MMs are promoting shares they purchased to hedge. That drives the worth down, which then causes extra de-hedging. That is all a manufactured selloff by elimination of capacity of individuals to purchase the fairness and may completely be investigated. It’s extremely possible the massive boys knew the shopping for restriction was coming and began the selloff final evening.

Replace 3: getting angrier by the minute. Reviewing the quantity and worth motion and shorts purchased in quantity on the absolute backside. This mothefucker, Steve Cohen, who bailed out Melvin and beforehand accused of insider buying and selling is now GLOATING after this blatant trick https://twitter.com/StevenACohen2/standing/1354864321134735360?s=09

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