Its not the squeeze that produces the big profits, its driving a stock to zero on a company that does not have the resources to fight back! (Nobody will try to naked short Proctor and Gamble to zero!) This latest GME fiasco was an exception because the squeezers got the upper hand momentarily. That generally hasn't happened (didn't happen in the days before social media!).
"Its not the squeeze that produces the big profits, its driving a stock to zero on a company that does not have the resources to fight back!" That never been the reality. It is an urban myth by people who wanted short selling to be banned. There always have been numerous badly run companies for the short sellers to go after.
Most times when you try to make a law to protect someone, you end up hurting them. If they really want to help the little guy, remove all laws. Let insider trading be legal, since it already happens. Let market manipulation be legal, since it already happens. And the list goes on. As we see with this GME mess, the laws only work one way. I would have loved to see GME hit $1000. I would have loved to see those corporations that extended lines of credit to Melvin also see their "investment" evaporate. At the end of the day, the market is just a bunch of buyers and sellers that agree on a price. If someone wants to pay $1000 for a worthless company, let them. And if someone bets against it, they better be prepared to get out or learn a hard lesson, something that many retail traders have to learn. Who cares if every now and then you take down a whale. The more fair the government tries to make something, the more advantage they give to the whales.
re" GME the new reality +koss, bb etc.. Your comment is interesting for recognizing current reality in the marketplace, but not fully. "Its not the squeeze that produces the big profits, its driving a stock to zero on a company that does not have the resources to fight back!" " This latest GME fiasco was an exception because the squeezers got the upper hand momentarily" GME is the new reality. Any company that feels it has been unfairly targeted by the shorts can easily bond together with the WSB people etc. to make their case. It does not take great monetary resources to present your case to large group of investors. You can thank social media for the new transparency. It is the new reality. ps any good thing can be taken extremes. Obviously late comers overpaid for GME. The smart bullish people took their profits. The greedy fools lost as usual. That is the way of the world.
If short selling was made easier GME etc. would not have reached ridiculous heights last months. The whales were able to short the stock but not the average investor. Truth be said hedge fund traders who understand markets made big money on both the long side and short side.
Well I do think it makes sense that to short something, you gotta be able to locate it. That's why futures simplifies everything in my opinion. But you are right that even before the mess started, it already wasn't an even playing field.
re: nothing artificial in my scenario It is analogous to a go fund me page. You present your case and then see the results
Agreed. It was pretty pathetic. The biggest disappointment was that they didn't subpoena the clearinghouses, the DTCC to testify. If the restricted buying was a direct result of the clearinghouses demanding for an increase in collateral margin when in fact clearinghouses were supposed to be the ones who "stand in between" the two sides of a transaction to ensure the integrity of the financial system, then why wasn't DTCC subpoenaed to testify to answer to questions WHY they were derelict in their duties in "standing between the two sides of the transaction" instead just offloaded the "risk" by forcing everyone else in the system to put in more money when they themselves were the ones who was supposed to go in and put in more of their own money? To me, they were really the culprit that started this market manipulation just because they wanted to offload the "risk" very much the same way that Goldman Sachs knowingly dumped toxic MBS onto everyone else and started the financial crisis. And yet they remain comfortably at large behind the scene untouched and unquestioned watching pawns like Citadel and Robinhood basically being scapegoated for DTCC's failure in fulfilling their duty as the "settler of all accounts of the last resort". Another obvious thing that seemed to have come out of this is the need to control and limit extremely highly margined short-selling. In short, nobody should be allowed to short more than the total number of shares available for any company. At one point, Melvin Capital was 140% short in GME. That is absolutely ridiculous!!! How can you sell more than the number of shares that the company has issued to the ENTIRE market??!! If I have only issued 1 million shares that represent ownership stake in my company, how can you try to short 10 million shares with 9 million shares that weren't even there? If we were to buy shares, we could only buy a total of 1 million shares; we wouldn't be able to buy 10 million shares. So if I cannot buy more shares than what the company has issued, then WHY should the short-sellers be allowed to short more shares than issued? That does NOT make sense!! This clearly creates unfair advantage to the short sellers to allow them to be able to drive a company's stock to an unjustified low value to make a profit. From a risk management point of view, short-selling in itself is already a trading activity on margin, being allowed to short-sell more than the total number of shares available in a company without increasing in margin requirement is like margin on steroids! It's like borrowing the funds that is to be borrowed. And then when s*** hits the fan, it's the brokerages and the MM's who had to put up more money??!! It was supposed to be the short-sellers who should've been required to put up more collateral margin in the first place if they were still allowed to short more shares than what is available. Otherwise, once somebody discovers the anomaly and tries to restore the share price to its fair value, all the short-sellers become dangerously over-leveraged. So basically they made the entire investment industry, not just the retail traders, but the brokers, the MM's, everybody to basically bail out the extremely over-leveraged short-sellers in the forms of restricted buying on the retail traders' part and increased collateral margin on the brokers' part. I hope this is one regulation that the lawmakers can seriously put some consideration into. 1) To cap the total number of shares that can be shorted to be maximum of 100% of total number of shares issued. 2) If no cap is to be placed on the total number of shares that can be shorted, then the maintenance margin requirement needs to be increased to be at least 2X of short % at all times. For example in Melvin Capital's case, at one point it was 140% short in GME, then it should be required to put up at least 280% cash margin on the side to remain short. And for every increment of $ of increase, the margin requirement should be increased accordingly, i.e. 3X margin requirement if the price increased into a certain % level and 4X if the price increased into another % level as long as the short position is held.