Yesterday i knew absolutely nothing about any of this shit, now I'm aimlessly looking for stuff on youtube to explain as much as possible, not necesarily in order to take part in it, although I'm definitively considering

  • glimmer_twin [he/him]
    ·
    4 years ago

    My brain keeps getting stuck on the “borrowing shares” part.

    As I understand it in simplified terms, Melvin “borrowed” GameStop stock from investor A, with the proviso that they sell it back (after a certain time has passed?) at the same value. Almost like getting a loan like any normal person would.

    Then Melvin sells that stock to investor B. They then borrowed the stock back from investor B to resell again. So they’re on the hook multiple times for each share.

    It’s almost like a regular person taking out a big loan and buying a bunch of Iraqi dinar or something expecting it to go up in value and then watching it plummet, but still being on the hook for the initial loan. Except in reverse, lol.

    Is that a somewhat correct summary?

    • Washburn [she/her]
      ·
      4 years ago

      Mostly, the loan analogy is really close- In a short, you agree to borrow a stock in exchange for paying interest to the owner for the time you've borrowed it. You sell the stock you've borrowed for the current price, thinking it will go down in value later, you can rebuy it to return, and pocket the difference (minus the interest).

      They don't need to return the exact share that they borrowed, just an amount of shares equal to the amount that they borrowed. It's more like, Melvin said "Hey, we want to borrow shares of GameStop, does anyone have some we could borrow?" and Investor A says "Yes, we do, here." Then Melvin goes, sells the shares to Investor B, and says again "Hey, we want to borrow shares of GameStop, does anyone have some shares we could borrow?" and another investor, it could be Investor B, or it could be a different one, offers their shares to Melvin. With the number of shares that they have shorted though, they have definitely shorted some shares more than once.