GameStop Is Down Another 42%, When Does The Collapse End?

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Despite the obvious fact that the GameStop squeeze is not only over but in reverse denial runs deep.

Story Much Deeper Than Widely Believed

There is much more to the story that widely believed. 

Reddit traders were the catalyst for the squeeze idea, but that is all you can give them credit for. 

Anatomy of a Short Squeeze

  1. Reddit traders on WallStreetBets discuss the GameStop idea. The incubation period lasts many months. 
  2. The stock slowly rises and hedge funds pick up on the idea. 
  3. Stubborn shorts keep at it and the stock is 140% shorted.
  4. More hedge funds pile in, this time with calls on the long side. They understand short squeezes.
  5. After they buy calls, the hedge funds flood place huge market orders for more shares.
  6. The market makers who sold the calls have to buy shares to hedge the calls they sold. 
  7. Steps 5 and 6 repeat until the shorts capitulate. This marks the absolute top. 
  8. In the process of 5 and 6, the hedge funds who were long take gains. 
  9. Some of those hedge funds in step 8 understand what's next. They buy massive numbers of puts.
  10. The hedge funds who bought the PUTs then dump their longs in size. 
  11. GameStop plunges. 
  12. The hedge funds buy more puts and dump more stock with market orders, not limit orders.
  13. The option makers who sold the puts have to hedge. They hedge by shorting shares.
  14. There are no rules against market makers being naked short. 
  15. Prices continue to collapse.

Not David vs Goliath 

The Reddit traders and the mainstream media portray this as a David vs Goliath setup. 

That is not at all what happened. 

Reddit traders and individuals did not push two hedge funds to the brink. They were not big enough. 

Hedge funds vs hedge fund is the real story behind the squeeze.

WallStreetBets and Reddit traders get credit for an idea and sticking with it, but they are not the driving force and they still do not understand what happened and why.

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William K. 4 weeks ago Member's comment

An interesting analysis of what happened.