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  • Stockgrid IO total float shorted ?

     CrayonMuncher updated 1 year, 3 months ago 2 Members · 6 Posts
    AMC
  • robodrill

    Member
    June 23, 2021 at 10:37 am

    From the 10,000 ft level here is how I see the situation:

    Special people are permitted to counterfeit shares and other special people are allowed to sell shares they do not own. Because of this, there are shares which must be covered eventually, after all attempts to disguise the hedgie position are exhausted. OK, we know that. That is why we are here.

    A question I always had was the short percentage. If it is really 13 percent, then only thirteen percent of the shares we own would be needed by the hedgies, leaving the other 87 percent as bag holders. But we are told there is many many more shorted than 13 percent.

    I think there is proof on Stockgrid IO. As I read it, the hedge funds have a running total of 400 million more shares bought than sold in the dark pool. Apparently they buy shares on the dark pool and sell them on the exchange to drive down the price. The dark pool is still subject to law, so they will have to cover every share.

    If they have manufactured more shares that the total float, then every Ape will get paid. The last ape to hold will have whatever he/she wants for a price because if they only own one share, and the hedies cover every other share in existence, they will still need that last share.

    Can someone smarter than me check this out? If this is true, it will be a massive call to the movement. If there is no chance of any ape being left behind, then there is no FUD that can convince an ape to paperhand.

  • CrayonMuncher

    Member
    June 23, 2021 at 12:16 pm

    Just a few bullet points to hopefully clear up any confusion.

    • Nobody is permitted to counterfeit shares
    • The naked shares happen at the prime broker level rather than the hedge fund level

    https://www.investopedia.com/terms/n/nakedshorting.asp

    When someone (a hedge fund, institution, retail investor, etc) wants to short a stock, their broker must locate it first, give it to the person doing the shorting, and then the shorter sells it into the market.

    The problem happens when it isn’t first located.

    Example: If a hedge fund goes to their prime broker and signals an intent to short, the prime broker needs to find the share(s) first. Whether or not they can find them is determined by if it is ETB (easy to borrow) or HTB (hard to borrow).

    Let’s say AMC is HTB and the prime broker doesn’t want to delay the hedge fund and they allow the hedge fund to establish the position. This puts both the prime broker and the hedge fund on the hook for it. There is now an IOU out in the market that really shouldn’t exist and it increases the number of shares that were authorized by AMC. This was made illegal after the 2008 housing/financial crisis.

    • The short interest is how many shares have been sold short but haven’t been covered yet.

    Keep in mind this number is only as good as the data that’s been reported as well as what “can” be reported. The total number of naked shorts has grown so much, nobody can count how many there are, so the short interest number can’t reflect those. It can only reflect the true shorts that are not naked.

    • The dark pool was meant to be a place on the side for special purposes. One example is when large institutions want to make large buys/sells with others and they don’t want to disrupt the health of the stock in the general population. They can handle these transactions off to the side. Dark pools are still regulated and reported, but we are seeing the purpose of the dark pool being abused.

    *** Be careful with this statement ***

    If they have manufactured more shares that the total float, then every Ape will get paid. The last ape to hold will have whatever he/she wants for a price because if they only own one share, and the hedies cover every other share in existence, they will still need that last share.

    In theory, yes, this is partially true. The part that is true is that all shares must be covered. Yes, they are legally bound but the reality is that they can only be covered by shorters that still have money to cover them. Be careful since there is no guarantee and here is why (and I made a simple picture to roughly illustrate it).

    On the run up as the squeeze is happening and the shorts are being covered (both real and naked), a time could come where the hedge funds (or whoever sold the short into the market) go broke. The last trading could be between only those that can afford the trades (could be retail, remaining hedge funds, institutions, etc).

    When we hit the peak and start coming down, the buying and selling could be unreliable. Some sell orders could get only partially filled and some may not get filled at all (if there are no buyers). This is where bag holders could be made and why people using the “selling on the way down” strategy need to be careful.

    • robodrill

      Member
      June 23, 2021 at 12:46 pm

      Thank you for the comprehensive answer.

      When I say counterfeit, I mean it in the generic sense.

      A market maker can “provide” shares that do not exist for the purpose of “liquidity”. A hedge fund can “borrow” a share just by “locating” it. Of course multiple funds can all “locate” the same share.

      If I borrow ten dollars from you, then you are ten dollars down and I am ten dollars up until I pay it back.

      If a hedge fund “borrows” a share, the original owner still owns that share and the Hedge fund sells the share they borrow. This results in an additional share.

      If I started an on-line store and sold stuff I did not own, it would be called fraud. If I sold things that did not exist it would be called fraud. If I sold securities I did not own, it would be called counterfeiting. Only special people are allowed to do this. That is what I mean by counterfeiting.

      This entire scenario is possible only because special people are permitted to sell things they do not own. If I want to buy a share of $xyz, and there are no sellers, then I should have to raise my bid until a seller is willing to sell or I give up. No one should be able to sell me a share they “borrowed” and no one should be allowed to undercut legitimate owners by “providing” a share.

      This would end so many problems. Shorting would not exist. If a company is thought to be overpriced, then a fund would just need to sell the shares they own and wait for the price to drop to buy back in, just like the rest of us. Manipulation of the price by flooding the market with fake shares would not be possible.

      We are being told that “shorting is good because it stops bad companies”. Nope. Shorting is just stealing. The free market can decide which company is “bad”.

      I have no problem with “dark pools”. The transactions should be reported immediately however, in real time, to the exchange handling the stock. The same rules against counterfeiting share by “borrowing” or “providing” should prevail there as well.

  • CrayonMuncher

    Member
    June 23, 2021 at 2:27 pm

    No problem. I think I see where some confusion exists. I’ll see if I can get my thoughts into words. Sometimes that’s the hardest challenge for me.

    The idea of borrowing a share does exist for the purpose of people being able to take a short position, and this is a normal and good transaction in the stock market. That is reflected in the “shares on loan” metrics in Ortex and other platforms.

    In a normal situation, that borrowed share eventually gets bought back by the shorter and returned to the person it was borrowed from and the circle is completed and all is well.

    Things go off the rails is when:

    1. The share isn’t found first and the transaction is allowed to happen. There is a T+2 settlement period where there is a 2 day window for that share to be tracked down by the prime broker and handed over to the buyer. In a normal situation it will be found and this is good. When it isn’t found for whatever reason and misses the T+2 window, it gets flagged as an FTD (failure to deliver). This is our “naked share” that now exists when it shouldn’t and is bad.

    2. Apes buy and hold. Now there is an “extra” share in existence that shouldn’t be there and it never closes out because we never sell it back. All those IOU’s begin to pile up and raise the FTD numbers. This is how we can watch the shorters feel the pain and add more to them. We then see the shorters continue this cycle and we see the FTD’s grow and this will put even more pressure on them.

    There is another issue too. Yes, like you said, multiple prime brokers can locate the same share and send it out for borrowing. While it is possible, it is also a problem. This is what has been termed rehypothication. Now that single lent share can be lent out multiple times, so that adds more to the problem. If each share had a uniquely identifiable feature, like a certificate number or guid or something along those lines, then rehypothication can be addressed. If transactions happened on a blockchain, this wouldn’t be an issue, but that’s another discussion.

    I know some of the next statements will ruffle some feathers but let me explain.

    Shorting is neither good nor bad, it is just another normal transaction. Naked shorting also is neither good nor bad and also another transaction ONLY WHEN the share is properly located and transferred within the T+2 settlement window. Predatory shorting (both normal or naked) with the intent to drive a company to bankruptcy is bad. Rehypothication is a problem. All of these are loaded guns that can shoot prime brokers/shorters in the foot if misused or abused.

    Shorting serves a purpose. It is a check & balance way to keep a price from being artificially large. Going long lets us speculate that the current value of a company is too low right now and we think it really should be higher. Going short is just the opposite. It just means that someone thinks that the current value of the company is too high for whatever reason and should be lower. You can’t have one without the other since they balance themselves out (when not abused) and this is how prices get set throughout the day. It’s a constant back and forth over what value everyone is putting on a company. Pump and dumps are the example of longs being abused and predatory shortings are the example of shorts being abused.

    There are many legit purposes of dark pools with one being a place where the large transactions between institutions can be handled without disrupting the market. Think of it as someone doing a cannonball in the kiddie pool. Unfortunately dark pools can be abused too.

    Also, they are reported in real-time via a consolidated tape.

    https://www.investopedia.com/articles/markets/050614/introduction-dark-pools.asp

    • robodrill

      Member
      June 23, 2021 at 2:42 pm

      Thank you.

      Back to the original idea.

      There are youtubers who are showing Stockgrid IO data that reports trades in the dark pool. This data shows the number of shares purchased and sold as an agregate daily and as a cumulative number.

      It says there have been a net number of shares bought in the dark pool numbered at over 400 million shares. If we know those were not bought from us, then is it reasonable to count them as synthetics? The supposition is that these have been sold in the exchange to depress the price. Who bought them if this is true, I do not know. We know they were not bought back by hedge funds and sold back in the dark pool because a) buying 400 million shares would have sent the price soaring, and b) the dark pool net is still 400 million shares purchased.

      My read, if this is true, is the hedge funds have bought from each other or from market makers over 400 million synthetic shares and sold them. This should mean they have to reconcile an amount equal to the float. This should mean that no ape will be a bag holder, and therefor no ape needs to sell until they wish to sell.

      • CrayonMuncher

        Member
        June 23, 2021 at 3:41 pm

        I believe Stockgrid IO is reporting volume and not the individual trade details. I could be wrong, but if that’s the case and it is an aggregate, the total number being reported can be very large and we don’t know which transactions are longs vs shorts.

        Why that matters is because there could be large block trades between institutions that make up a lot of that volume alongside tons of other transactions routed to the dark pools. Without knowing the exact type of trade, we can only see volume and make assumptions on what type of transaction it really is.

        If there aren’t large institutional buying taking place and what is being routed to the dark pools in fact is normal transactions, then yes it’s probably possible there is a lot of price action going on with the synthetics (or “naked shorts”). It wouldn’t be surprising if that’s the case since that’s probably the majority of what’s floating around out there. Even if there are large institutional trades going on, they might be right alongside us buying tons of synthetics as well. These naked shorts have been created for months now so there’s no telling how many are out there running the market day to day. It’s become so diluted with synthetics that true reporting is getting harder.

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