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Truenorth00 Jan 28, 2021 10:35 PM
We'll find out in the morning what short interest is. 54 million volume. If Melvin didn't cover today, they deserve what's coming.

Robertpuant Jan 28, 2021 10:39 PM
The use of certain words can be redundant in stock options. But here's what they mean:

being Short = betting stock will fall
being Long = betting stock will rise
Short (verb) = selling the option
Long (verb) = buying the option
Call = buying the stock
Put = selling the stock

The buyer of the option has the option to execute the option if he wants to or not. He pays a fee to the seller of the option for that privilege. Unlimited gains, limited losses.
The seller of the option has the obligation to execute the option if the buyer requests so. He receives a fee from the buyer for the extra risk. Limited gains, unlimited losses.

exemple: short call = selling the option to buy a stock. Since he his the seller, he has unlimited possible losses because he has the obligation to execute the option at the request of the buyer no matter what the price is. He has a limited profit because past a certain price range, the buyer will simply not execute the option. He will then pocket the fee (=his max profit).

suburbanite Jan 28, 2021 10:51 PM
Yes I know how an option works. Someone who writes calls is "in a short position" on the stock but the mechanics are not the same as physically borrowing shares and selling them short. Options inherently have an expiry while a short position can theoretically be held indefinitely if you can cover the margin.

Robertpuant Jan 28, 2021 11:03 PM
Quote:
Originally Posted by suburbanite (Post 9173639)
Someone who writes calls is "in a short position" on the stock but the mechanics are not the same as physically borrowing shares and selling them short.
I don't know what that means.

Quote:
Originally Posted by suburbanite (Post 9173639)
Options inherently have an expiry while a short position can theoretically be held indefinitely if you can cover the margin.
This is false (100% false). If you have unlimited money, you can theoretically lose deals after deals for eternity. But a short position ALWAYS has an expiratory date. 99% of businesses that existed 100 years don't exist today. 99.999% of businesses that existed 1000 years ago don't exist today. If such a contract existed it would yield 0.000001 % annually. It simply does not exist. You might as well buy 100 years negative government bonds.

Truenorth00 Jan 28, 2021 11:18 PM
Quote:
Originally Posted by Robertpuant (Post 9173651)
But a short position ALWAYS has an expiratory date.
Not quite. That's true on options. Not on shorting shares. Somebody might let you borrow shares to short at long as you keep paying interest.

Robertpuant Jan 28, 2021 11:22 PM
Quote:
Originally Posted by Truenorth00 (Post 9173657)
Not quite. That's true on options. Not on shorting shares. Somebody might let you borrow shares to short at long as you keep paying interest.
Not quite. How can you force someone to buy a share above market price if no contract exists? All contract have dates.

In the opposite direction, you can't force someone to sell a share under the market price without a contract.

Have to add, this whole share lending for interests doesn't exist outside of swapping and it has nothing to do with being short or long on a position. A stock cannot be lend for interest because it is not a currency. This is what we call commercial papers (private companies debt yielding interests).

Truenorth00 Jan 28, 2021 11:37 PM
Quote:
Originally Posted by Robertpuant (Post 9173661)
Not quite. How can you force someone to buy a share above market price if no contract exists? All contract have dates.
I don't think you get how shorting works here. Anybody who is shorting is short from the market price at the moment they shorted.

If you short right now, you will sell the share at market price at the moment of order execution. If the price then goes lower, you buy to cover and profit. If it goes higher, you buy to cover at a loss. You will have to pay interest on the share you borrowed to sell, the entire time.

Robertpuant Jan 28, 2021 11:44 PM
This is my field of work, I work in finance. How can you sell a stock you don't own without a contract that specify a date of return? ''Hey man, I sold your shares, I'll give them back in 150 years or whenever I want when they're worth 0$''.

Edit: didn't see that part
Quote:
Originally Posted by Truenorth00 (Post 9173671)
You will have to pay interest on the share you borrowed to sell, the entire time.
You guys have to stop with this share lending meme. It doesn't exist the way you think it does. Every interest paid in the world is denominated in a currency. When you buy a car on debt, you pay interest in dollars on the amount of dollars the car is denominated on, not on particles of that car. A share cannot be loaned because it is not a currency. You know what you can do instead? Go to the bank, ask for a loan, and buy the shares.

In the case of stock options, shares are loaned on the basis that they will be returned at a specified date.

Dengler Avenue Jan 28, 2021 11:47 PM
Quote:
Originally Posted by Robertpuant (Post 9173677)
This is my field of work, I work in finance. How can you sell a stock you don't own without a contract that specify a date of return? ''Hey man, I sold your shares, I'll give them back in 150 years or whenever I want when they're worth 0$''
Maybe that's a good thing because it seems to show that you and your company are the prudent ones.

Truenorth00 Jan 28, 2021 11:53 PM
Quote:
Originally Posted by Robertpuant (Post 9173677)
This is my field of work, I work in finance. How can you sell a stock you don't own without a contract that specify a date of return? ''Hey man, I sold your shares, I'll give them back in 150 years or whenever I want when they're worth 0$''
Ask the brokers that. There's some that will lend your shares without you even knowing.

But the big guys will lend to you without dates to return. Because presumably the carrying costs are your disincentive. Also, there maybe contractual stops to prevent you from blowing up with their shares.

The bigger risk is naked shorting with calls. That's how they got to 140% short of float with GME.

suburbanite Jan 28, 2021 11:56 PM
Quote:
Originally Posted by Robertpuant (Post 9173677)
This is my field of work, I work in finance. How can you sell a stock you don't own without a contract that specify a date of return? ''Hey man, I sold your shares, I'll give them back in 150 years or whenever I want when they're worth 0$''

Because you're paying massive amounts of interest as your position becomes weaker and weaker? The borrow fee on GME is 30% right now lol. Thats your discentinve to not carry your short position for eternity waiting for your prediction to unfold.

Obvisouly this type of short position has a practical timeline and cannot be carried out for eternity for obvious reasons. Theres still a difference between that and buying an option with a hard expiry date.

Robertpuant Jan 29, 2021 12:17 AM
Quote:
Originally Posted by suburbanite (Post 9173684)
Because you're paying massive amounts of interest as your position becomes weaker and weaker? The borrow fee on GME is 30% right now lol. Thats your discentinve to not carry your short position for eternity waiting for your prediction to unfold.

Obvisouly this type of short position has a practical timeline and cannot be carried out for eternity for obvious reasons. Theres still a difference between that and buying an option with a hard expiry date.
I know that such mechanisms exist, but they all pretty much have a return date or are used as such. The original argument was if it's possible to be short (betting a stock will fall) for eternity. My position was that it is not possible/doesn't exist. By shorting a position, unless you are in highly derivative territory/ multiplying vectors, your maximum gain is 100% of your original position. With interests being paid by you (whatever is the dominator, even if it's adjusted to a continually falling price), you will always end up losing more money than you gained the longer it goes on.

Robertpuant Jan 29, 2021 12:22 AM
Quote:
Originally Posted by Truenorth00 (Post 9173680)
The bigger risk is naked shorting with calls. That's how they got to 140% short of float with GME.
That's the big story here. How/why the SEC let it be allowed. The media is spinning the narrative that the redditors are acting in bad faith when it's clearly a lack of judgment from the Hedge Funds involved. They deserve no bail-out or special treatment for being this greedy. Naked shorting is illegal after all. I don't know what the loophole is that permit this to happen.

Truenorth00 Jan 29, 2021 1:15 PM
Quote:
Originally Posted by Robertpuant (Post 9173710)
That's the big story here. How/why the SEC let it be allowed. The media is spinning the narrative that the redditors are acting in bad faith when it's clearly a lack of judgment from the Hedge Funds involved. They deserve no bail-out or special treatment for being this greedy. Naked shorting is illegal after all. I don't know what the loophole is that permit this to happen.
Naked shorting is not entirely illegal. Everybody from hedge funds to the more sophisticated grandmas can and do actually do this. Especially by selling uncovered calls. There are, however, reserve limits for some institutions. So they don't blow themselves up in such circumstances. If you're a bank or market maker there's probably reserve requirements. They also have tighter internal risk management and will dump positions as they get worse. Or they hedge their shorts by buying calls. Hedge funds face no such limit. They can actually risk it all. That's the risk they take. And nobody is suggesting they get bailed out.

What's at issue here is that a market maker (Citadel) has a relationship with a hedge fund (Melvin Capital). And so they are incentivized not to let the latter blow up on a bad trade.

Brave Apr 24, 2021 8:16 PM
Quote:
Originally Posted by Robertpuant (Post 9173630)
The use of certain words can be redundant in stock options. But here's what they mean:

being Short = betting stock will fall
being Long = betting stock will rise
Short (verb) = selling the option
Long (verb) = buying the option
Call = buying the stock
Put = selling the stock

The buyer of the option has the option to execute the option if he wants to or not. He pays a fee to the seller of the option for that privilege. Unlimited gains, limited losses.
The seller of the option has the obligation to execute the option if the buyer requests so. He receives a fee from the buyer for the extra risk. Limited gains, unlimited losses.

exemple: short call = selling the option to buy a stock. Since he his the seller, he has unlimited possible losses because he has the obligation to execute the option at the request of the buyer no matter what the price is. He has a limited profit because past a certain price range, the buyer will simply not execute the option. He will then pocket the fee (=his max profit).
Have a look at ETH 2.0. There it has tons of improvements which will only make the dominance of ETH among other alts stronger.
Thanks for this short vocabulary :) I am new to the stock trading and sometimes don't get what people are discussing :shrug:


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