The tough love comes from the fear of losing money and covering hedge fund positions like global banks did with Archegos Capital earlier this year. It seems like they’ve started to notice a pattern here.
As always, I’ll give you my take on what this means for us retail investors and how it plays into AMC’s short squeeze news.
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Ladies and gentlemen banks have had enough. They’re tired of getting screwed over by hedge funds overleveraging their short positions. When hedge funds cannot cover the entire hit, brokers have to cover the rest.
JP Morgan is trying to prevent from becoming like one of the affected brokers that suffered significant losses due to Archegos shorting Viacom and Discovery earlier this year.
Although the SEC might be oblivious to what’s going on, this bank sure isn’t. And if you remember, Charles Schwab has also raised margin requirements for short sellers shorting both AMC and GME stock.
Archegos meltdown resulted in billion dollar losses for global banks
Banks to massive losses due to Archegos Capital overleveraging their positions in highly shorted stock such as Viacom and Discovery.
Wells Fargo was one of the banks that did not suffer any losses. “We had a prime brokerage relationship with Archegos,” the bank said. “We were well collateralized at all times over the last week and no longer have any exposure.”
According the Reuters, Morgan Stanley lost nearly $1 billion dollars from the collapse of Archegos. Other banks hit were Credit Suisse Group and Nomura Holdings which were affected the most.
Global banks were expected to lose between $5-$10 billion dollars according JP Morgan. And now it seems JP Morgan is taking the precautions necessary to avoid enormous losses too. By issuing intraday margins, they make sure short sellers have enough cash at hand as collateral. This could possibly be the catalyst for what we’ve been waiting for.
If margin accounts cannot keep up with the daily demand for new cash in its accounts, JP Morgan may instantaneously close out overleveraged positions. This will cause AMC stock to soar.
Hedge funds and family offices are affected
Archegos was technically a family office managing billions in assets, not a hedge fund. Well now JP Morgan is demanding both hedge funds and family offices post more cash during the day if their trades loses value.
The news was provided to Risk.net by three people who are familiar with the matter. No further information aside from these intraday margin requirements were relayed by the publication.
If JP Morgan sees too much risk within some accounts, and they will, they have the power to liquidate margin accounts short selling both AMC and GME stock. The results would drive these stocks high enough to force all shorts out of their positions.
Managing margin call news expectations
It’s important for the community to take into consideration that most news regarding margin calls have merely been neutral, so far.
If this JP Morgan margin call news plays in our favor then excellent! We could very well begin seeing some short covering. But if it doesn’t, another catalyst will end up squeezing shorts out of their positions. This may be a new wave of volume or other brokers who do not want to risk their investments through these overleveraged hedge funds.
However, positive news like this should feed your conviction. When you’re in need of strength, borrow mine.
I personally believe were getting closer to this chapter coming to an end as hedge funds continue to face serious scrutiny. Think about this for a second, the cards are against them.
Retail investors, banks, whales, and the public are all against them. I’m interested to know your thoughts, leave me a comment below. Are you ready for this short squeeze? And when do you personally think this will liftoff?