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The short sellers with the real money (and no pressure from the broker to cover the margin) will just hold out longer as they will eventually be able to cover their positions for a much smaller amount, and possibly even back as a profit. (For example, if they shorted it at $20 originally, drove it down to $3 and got greedy looking for more, they only need to get it back down to under $20 and they can cover their options and still make some money.)
What's real money? One of the biggest shorters (Melvin Capital) already got loaned almost 3bn to cover their losses / margin. And they might not have even closed their positions yet.
I think it's a long way from over yet.
georgert-
I think it's a long way from over yet.
Agreed, this has legs. There's no way Melvin have closed their positions, CNBC's report pre market open that they had screams of collusion, no way Melvin could close out their short just like that. On Bloomberg TV they showed that today there were twice as many puts than calls, so the shorts are trying to short their way out of it. If retail investors hold and just simply don't sell, this can run in a rising price/hedging feedback loop until Melvin is buried and then someone still has to be liable to close those short positions... Does that land at the broker's door?
This isn't a pump and dump so SEC can't cry foul, it's a legit squeeze. If you're mad enough to short over 140% of the float then that's on you. Shorting is big risk, big reward. Well Reddit is trying to ram this metric shit tonne of risk down the HFs throats.I've got no skin in this, just enjoying watching it unfold from the sidelines... MJEatingPopcorn.gif
ElGonzo
Seriously though, I'm not sure how these situations tend to play out.
If the price starts to plummet it's because people are selling in order to realise their gains, but you need people to buy at the high prices in order for that to happen. Someone with a few shares might be able to sell to someone late to the party who is mugged paying $300, but the majority of the sales are going to be made way back down under $100.
I'm guessing that the majority of people who are saying "hold, it's going to go higher" are secretly selling out to the new bunch of people piling in late. It may end up getting to $1000 but only 0.01% of people are going to be able to sell at that price. The rest are going to find they can't get more than $100 for their shares, if that.
Once it starts going down enough the people buying will be some of the short sellers who want to end the uncertainty and cover their short position. They'll make a loss but at least their position will be done and they can move on to the next stock.
The short sellers with the real money (and no pressure from the broker to cover the margin) will just hold out longer as they will eventually be able to cover their positions for a much smaller amount, and possibly even back as a profit. (For example, if they shorted it at $20 originally, drove it down to $3 and got greedy looking for more, they only need to get it back down to under $20 and they can cover their options and still make some money.)
Ultimately the share price will end up back around where it was before all of the shorting began, but how it does that will be interesting.
However, the fun starts up again once it gets under 100% of the float shorted as you might see a new wave of people trying to short it, for the reason that it's currently over-valued and will eventually settle back down to where it was originally.