Market News: Short seller losses amount to $81 billion this year as stock market rallies.
Short sellers feel the pain in the stock market’s 2023 rally, says the Wall Street Journal.
The market’s comeback in 2023 has been difficult news for one group of investors: short sellers.
Short sellers profit from the declines in the market, which we saw much of in 2022.
However, the stock market has been performing surprisingly well this year despite talks of a looming recession.
The Wall Street Journal reports that short sellers are down $81 billion this year alone as the markets begin to bounce back.
“Short sellers who have incurred hefty losses are actively trimming their positions”, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
“Investors betting against stocks have racked up $81 billion of mark-to-market losses on short positions this month through Thursday after accumulating $300 billion in gains in 2022”, Mr. Dusaniwsky said.
Experts are expecting heavily shorted stocks to squeeze as more short sellers begin to close their positions.
Is short squeeze season here?
Are stocks about to squeeze? Short seller losses in 2023.
Investors and analysts say the rally appears to be driven by a few things.
Signs that inflation is cooling have stoked bets among investors that the Federal Reserve will pivot from raising interest rates to cutting them as soon as the second half of the year.
That has helped risky assets across the board rise.
Especially risky corners of the market, such as stocks with high short interest, have rallied even more.
Analysts say that has likely forced short sellers to close out bearish positions to cut their losses — resulting in what is known on Wall Street as a short squeeze.
Retail favorites such as AMC stock, MULN, and others seem to have bottomed out earlier this year.
“We’re seeing a mirror image of the performance within the equity market. The worst performers last year have been leading this year,” said David Lefkowitz, head of Americas equities at UBS Global Wealth Management. “It does look like some re-risking and short covering.”
“A lot of these stocks rallying were highly shorted, long duration names with earnings way out in the future. With a significant decline in the discount rate, those earnings are now worth more,” said Sameer Bhasin, principal at Value Point Capital, a New York-based family office.
When will shorts close their positions in AMC? When will shorts cover AMC?
Every retail investor holding a position in AMC wants to know, when will shorts close their positions?
And I don’t blame you.
This one is a little tricky.
See, it’s like saying, “when will retail investors sell their positions?”
Welcome to Franknez.com – the blog that fights for you, the retail investor. Today I want to discuss shorts closing.
Let’s get started!
Retail investors have been waiting patiently for AMC Entertainment stock to rip.
You’ve been holding through the ups and downs and even buying the dips.
And although we did see AMC’s share price surge in 2021, the short sellers are still here in 2023.
So, why aren’t shorts closing their positions yet?
What do retail investors need to do to squeeze hedge funds out of their money?
Let’s discuss it.
Are shorts obligated to close their positions?
When do shorts have to close their positions in AMC?
Let’s start with the fundamental question.
Are shorts obligated to close their positions?
Now, there are currently no rules regarding how long a short can hold before closing out their position.
However, lenders do have the right to demand the seller closes their position with minimal notice.
This is rare and only occurs if the the seller isn’t paying the interest fee, or the interest fee is ridiculously high.
“A short position may be maintained as long as the investor is able to honor the margin requirements and pay the required interest and the broker lending the shares allows them to be borrowed.” – Investopedia
When an interest fee is extremely high, it makes a stock difficult to borrow which obligates the short seller to close their positions.
Short sellers are burning big money to keep these positions open in 2023 though.
You’ll want to keep an eye on this interest as it will determine just how much shorts are bleeding.
I update AMC’s short interest data (and others) here daily.
Why does the “Cost to Borrow” fee matter?
The cost to borrow fee is an interest that short sellers must pay for borrowing AMC shares to short the company stock.
These fees are currently at an all-time high.
Short sellers will hold in hopes to drive AMC’s share price right back down to the floor.
However, AMC is trending upwards now and has absolutely no intention of going back down.
Analysts data and AI predictions all point towards a high possibility of a short squeeze.
Even Fintel’s short squeeze score has been as high as 80-90% in recent weeks.
This short borrow fee is going to continue to go up as AMC stock becomes harder to borrow.
For short sellers, a low short borrow fee is in their favor.
Hedge funds much rather pay the fee and stubbornly continue to hold their positions against retail investors.
But, if the short borrow fee is high enough to hurt the borrower, they will be more inclined to close their positions before losing an excruciating amount of money.
How can retail investors help drive the short borrow fee up?
Retail investors have helped drive the short borrow fee up simply by holding their positions.
When AMC squeezes, not every short will close their positions immediately.
This means retail investors won’t ever be able to time the high.
There will be short sellers who will continue to short even as share prices rise.
If we begin to see AMC’s price action rise monumentally, it is important to have a plan on how to take profits.
Just like a day trade, investors may be profitable for some time until they see gains turn into losses, which usually occurs due to greed in the markets.
This is what you want to avoid.
Important advisory: I am not a licensed financial advisory. I simply have a passion for finance and writing.
What happens when a short close their position?
A short position will be profitable if it is closed at a lower price than the initial transaction; it is at a loss if it is closed at a higher price.
In AMC’s case, shorts who drove began to short around $5 but are still holding to-date are at a loss.
AMC is currently trading around $6.08 per share as of 2/2.
When there’s a ton of shorts closing (in a particular stock), it will result in a short squeeze.
What is a short squeeze?
A short squeeze occurs when a stock spikes in price action due to an increase of short-sellers closing out their positions.
We’ve seen a short squeeze happen with both GameStop and Volkswagen. GME topped almost $500 while Volkswagen spiked shy below $1,000 back in 2008.
Some short sellers closed in June of 2021 when AMC shares rose to $72 per share as well.
AMC’s price skyrockets to more than +3,000% that year!
Short squeezes are massively profitable for retail investors.
These phenomena are how people are able to accumulate wealth in such little time.
AMC said bankruptcy was no longer on the table years ago and some Wall Street analysts have said the industry is on a solid path to resurgence, via Hollywood Reporter.
In fact, the short thesis is beginning to change with many incredible developments happening in the movie theatre industry.
AMC Entertainment (NYSE:AMC) is up more than 54% this year-to-date and it looks like the stock has bottomed out.
As we continue to see a high utilization and the short borrow fee increase, we can only expect shorts may be incentivized to close sooner than later.
Will AMC’s price action continue to go up?
AMC stock has always had high demand from shareholders.
While many of these retail activists continue to hold losses from June’s drop, it’s possible this changes – granted that short sellers close out their positions this year.
Short sellers will have the option to hold their loses on paper for months to come (with fees) or close their position at the current share prices.
Short selling is a risky business and bulls have sent a message – “we’re not leaving”.
With new titles coming to AMC movie theaters as well as new developments, we’re only going to continue to see a surge in price action due to an increase in the company’s fundamental growth.
Even if shorts continue to hold, lenders will eventually run up the interest rate again, forcing them to throw in the towel.
Leave a comment below and let the community know what a short squeeze would mean for you.
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Market News Today – When do shorts have to close their positions in AMC?
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Market News: Here’s the latest on AMC’s Preferred Equity, APE.
Retail investors are angry at regulators for allowing Wall Street to decimate APE stock.
While AMC’s Preferred Equity (APE) was intended for the company to capitalize on, banks, institutions, and short sellers have abused shares to the ground.
The equity was meant to provide AMC Entertainment with liquidity in order to pay down their debt.
While AMC was able to reduce their debt by $106 million due to APE, shares have been shorted from $7 all the way down to $0.81.
Shareholders questioned how shorting APE was possible in the first place, failing to recognize that APE is a tradable security just like any other stock.
Faceless influencers within the AMC community led many retail investors to believe that shorting AMC’s Preferred Equity was impossible.
And unfortunately, this perception clouded many people from creating a proper investment strategy or embracing for what was to come.
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Retail Investors Seek to CEO for Answers
AMC and APE shareholders all have one common goal in mind, an AMC short squeeze and an APE short squeeze.
And although many shareholders have been transformed into paying customers, others are looking at AMC CEO Adam Aron for answers.
Loyalists don’t question the CEO and will condemn you for doing so, but if shareholders are still invested in the company, they have every right to yearn for answers.
Adam Aron has successfully maneuvered AMC out of bankruptcy, primarily thanks to its shareholders of course.
He’s utilized Twitter magnificently in a way that no other CEO has ever done so before.
And you can’t help but to admire the business personality in him that can raise cash out of thin air.
Addressing shareholder concerns is important, whether you agree or not.
Does It Even Matter?
Some of you care about your money, your finances, your investments, and some of you simply don’t.
To some, being part of an embracing community, being known in a community, and embracing the movie theatre industry, but more specifically AMC Entertainment, is more important than monetary gains or financial abundance at this point.
And is that even a bad thing?
You just want to be heard; you want to fight evil in the markets without a care about money.
Or maybe you’re simply in the middle.
👀@CEOAdam Thanks! I can say we all enjoyed! German apes: he will be in Germany around january or februari and probably in Berlin…. My favorite city…. will try to be there! pic.twitter.com/xysVCeyJIR
AMC’s short borrow fee is rising again and short sellers are now paying more to short AMC stock.
This is the fee short sellers pay to borrow and short the stock.
It fell as low as 0.30% earlier this year but has now risen to 18.60%.
Although the short borrow fee is still relatively low, the progression could lead to more impactful losses.
Last year hedge funds lost billions betting against the world’s largest movie theatre chain.
Overleveraged positions with high short borrow fee rates only multiplied losses.
Rising short borrow fees could incentivize short sellers to completely ditch the play and close their short positions as shorting becomes more expensive.
Let’s break it down together.
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AMC’s short borrow fee increases
AMC’s short borrow fee rate has steadily been increasing as the markets have tanked.
It comes as no surprise that the fee to short AMC stock would increase during this liquidity crisis.
The SPY officially hit bear market territorytwo weeks ago, but the market bounced rather quickly, trading just above bear market levels.
AMC continues to be one of the heaviest shorted stocks in the market.
It wiped billions of dollars from hedge funds shorting it last year.
And with a high short interest of 22.52%, AMC has more than enough juice to squeeze shorts from their positions.
But AMC’s short borrow fee rate and short interest percentage aren’t the only metrics increasing.
Pressure is escalating as AMC’s shares on loan reach an all-time high.
Pressure escalates as AMC’s shares on loan skyrocket
AMC’s current shares on loan have reached 185 million.
These shares on loan eventually have to be returned to the lender by buying back the stock in the lit market (NYSE).
The massive buying pressure is going to create a high demand for the stock.
As the demand for the security goes up, so does the cost to buy it (the value of the security).
When AMC surged to $72 per share in June, it had roughly just over 100 million shares on loan and a short interest of 24% before falling to 20%, then 14%.
Today, AMC’s shares on loan have hit 191 million with a high short interest of 22.52%.
Will AMC’s increasing borrow fee rate force shorts to close positions?
AMC’s increasing short borrow fee rate may certainly incentivize short sellers to close their short positions.
The stock is slowly becoming harder to short and the cost to borrow it might prove to not be worth risking significant losses as the market adjusts itself for a reversal.
At some point, it’s going to be time to start betting long.
As you can tell, short sellers have the biggest risk here.
One simple bull rally can eliminate short sellers’ portfolios.
And with the SPY showing significant strength in the $400 level, one can assume the markets have potentially found a bottom.
The SPY momentarily hit official bear market levels last week but has managed to trade just above it.
A significant break upwards could bring the entire markets back up, hurting short sellers.
Be sure to connect with me on social media for daily updates.
Also, join the discussion in the comment section of the blog down below.
Forward a month later and now the hedge fund is announcing it is closing this summer.
Earlier in March we saw another notorious hedge fund known for shorting GameStop pull $2 billion from Gabe Plotkin’s Melvin Capital.
That hedge fund was Citadel.
Citadel also lost billions last year shorting so called ‘meme stocks’, so it comes as no surprise as to why they pulled out from Gabe Plotkin’s Melvin Capital.
Ken Griffin’s Citadel also imposed tight restrictions on its clients leading into the new year.
Customers were given an ultimatum to either stay with the firm otherwise coming back would prove to be difficult.
Steve Cohen’s Point72 redeemed $750 million from Melvin Capital around the same time.
Ken Griffin received a $1.2 billion lifeline from partners Sequoia and Paradigm in January of this year.
This was the first time Citadel had ever received private funding.
Don’t bet against the apes
Mainstream media doesn’t give retail investors enough credit for shedding light on market injustices.
The ‘ape’ community has grown since last year as retail investors discover the short interest data that points towards a bigger AMC runup than that of January and May of last year.
In this video I go over patterns that are similar to those from last year’s runup and what we should keep a close eye out on.
The apes were right about naked shorting, dark pools, and the dangers of betting against retail.
Now hedge funds are dealing with the consequences of betting against the people.
Majority of the community continues to buy and hold ‘meme stocks’ such as AMC and GameStop in efforts to create a massive short squeeze.
Retail has said it many times, a short squeeze is inevitable.
While the SEC might be proposing rules that could wash naked short selling, yet avoid them in the future, it would take years to enforce if passed.
Will hedge funds survive?
Hedge funds are currently facing deep scrutiny from both retail investors and regulators.
Investors invested in great companies are losing money not because of business fundamentals, but because of the lack of regulation in the financial system.
Crypto developers say crypto crash was coordinated
LUNA and UST developers said this week’s crash was caused by a coordinated attack from hedge funds and big banks.
It comes as no surprise since hedge funds and big banks have been colluding to short specific stocks in the market.
The fed has opened investigations looking into these serious issues.
Word is spreading on Twitter and Reddit and BlackRock and Citadel are responsible for the massive selloffs in the crypto market too.
Deeper due diligence is being done on this matter.
Citadel or not, coordinated attacks on securities is something the government should be taking seriously.
Will stocks and crypto bounce back?
It’s difficult to look ahead when the markets are bleeding, after all you are seeing your net worth drop quicker than it took for it to reach new heights.
If you’re worried about today’s markets, you might have been introduced to a short-term way of investing.
While certain plays could be short-term trades, majority of the market tends to be a long-term speculative game.
We bet that the companies we’re investing in will do great over the span of 10 years or so and let the markets go through the ups and downs, at least in the case of the stock market.
Crypto has and will always have greater potential than it has previously seen.
And crypto heads know this.
Is this the end of the stock and crypto markets?
Absolutely not.
What we’re seeing today has happened several times over the course of both markets.
After a climb, there’s always some setback that scares investors momentarily.
But if there’s something we can always learn from historic patterns, it’s that stocks and crypto have always gone right back up and set even bigger all-time highs.
Is now the perfect time to buy?
Is now the perfect time to buy stocks and crypto?
It seems both stocks and crypto are having a difficult time finding a bottom.
And trying to time it has always proven that no one can time the markets perfectly.
Searching for a good entry point could just as likely end up hurting you if the markets were to suddenly go through a reversal.
Skilled long-term investors know that when the markets are red, you buy and hold.
Because the price of securities always goes up after a dreadful period of nonstop downtrend.
The upcoming reversal will have you wishing you’d have stocked up on stocks and crypto today.
Tiger Global Management is down 34% this year through March.
The speed of the reversal has shocked just about everyone, considering that Coleman is celebrated as one of his generation’s brightest stars, a standout among the elite money managers mentored by the famed Julian Robertson, Bloomberg.
Tiger Global Management treads rocky waters
The bad run has been fueled by massive bets on stocks that have been hammered, such as fast-growing tech companies in the U.S and China.
Tiger Global hedge fund lost 7% last year, its first annual drop since 2016 and its third total, according to Bloomberg.
Tiger Global told clients in a letter that it’s opening up both its hedge and long funds to a limited amount of capital from existing investors to bolster positions in stocks that underperformed
However, we see the results in the first quarter of 2022 has not been what the hedge fund anticipated.
Built by Coleman and his partner Scott Shleifer, Tiger Global has long been seen as a throwback to the industry’s glory years, when double-digit returns were the norm and ‘hotshot managers’ unerringly backed winning companies and shorted the losers.
Across the firm’s $35 billion in funds focused on public companies, this year’s losses have triggered a more than $10 billion hit to investors that include foundations, endowments and pension funds, as well as Tiger Global insiders.
Coleman’s personal wealth has dropped by $1.3 billion, according to calculations by the Bloomberg Billionaires Index.
Coleman’s hedge fund headed towards worst year
Tiger Global hedge fund may be on track for one of its worst years yet.
The blue in this chart indicates the hedge fund’s losses in 2008, 2016, 2021, and 2022.
The firm’s first serious bump was during the 2008 financial crisis, when it lost 26%, followed by a 1% gain the next year.
While markets were already jittery this year due to high inflation and expectations of rate hikes, Russia’s war against Ukraine triggered a flight from risk.
The Russia-Ukraine conflict has affected every corner of the financial sector.
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Bill Ackman, Herbalife short
Now former short seller activist, Bill Ackman is known for shorting Herbalife.
He began shorting Herbalife in 2012 but closed his position in 2017, cutting his losses.
Ackman had expected the stock to tank further over time, enabling him to make a windfall through a short sale.
But the strategy backfired.
Bill Ackman’s short bet on Herbalife cost him $1 billion in losses.
Now the short seller says Pershing Square is taking a different approach.
Entering the 19th year of Pershing Square, Ackman said he’s ready to take his firm to the next era to focus on long-term, “quieter” bets.
So, it looks like the short seller is trying to steer from having eyes on them.
He said they have had the opportunity to get to know many boards and management teams, and they’ve built a reputation as a constructive, long-term, and helpful owner.
Ackman added his team has been cordial, constructive, and productive and that they intend to keep it that way as it makes their job easier and more fun, to improve their quality of life.
Bill Ackman on GameStop and retail investors
Ackman said in an interview last year that retail is the biggest investor in the world.
He said investors have the power to move stock prices.
And he’s not wrong.
The only thing stopping retail investors from truly moving the markets is the lack of regulation on market makers and hedge funds.
You can watch the full interview below.
Heavily shorted stocks such as AMC and GameStop have cost short sellers billions of dollars both last year and this new year.
Both these stocks continue to be heavily shorted despite their complete turnaround in fundamentals.
And it seems short sellers are taking this one personal with retail.
Retail investors weren’t wrong about AMC’s first two massive runups last year, and they won’t be wrong about the third runup this year either.
What is Bill Ackman’s Pershing Square investing in?
Ackman said about 30% of our equity portfolio is invested in music and video streaming — UMG and Netflix, while 26% in restaurants and restaurant franchising — Chipotle,Restaurant Brands and Domino’s.
“We expect that each of these companies will grow their revenues and profitability over the long term, regardless of recent events and the various other challenges that the world will face over the short, intermediate, and long-term,” Ackman said.
What do you think led to Ackman’s complete business remodel?
After all, Pershing Square was one of the hedge funds that benefited from Fannie Mae and Freddie Mac half a decade ago.
Short sellers made approximately $100 million according to S3.
In a time where short sellers are under extreme scrutiny, do you think it’s possible this billionaire is trying to stay away from the likes of the Justice Department?
(Bloomberg) Moscow bans short selling, indicating officials are preparing to reopen the market.
Russia is banning short selling in some of the country’s biggest companies.
The power to ban a strategy used by hedge funds to inflict damage on a company’s stock raises curiosity.
Is this Russia’s way of raising capital?
And should more countries like the U.S. also ban short selling?
Let’s break it down together.
Welcome to Franknez.com – if you haven’t already joined the newsletter be sure to do that below. I’m publishing daily market news to keep you informed.
What the ban on short selling in Moscow shows us is that governments have the power to remove the same predatorial short selling that we see happening in recovering companies such as AMC and GameStop.
While short selling has its use in the market to balance volatility, limiting the use of short selling on a group of companies wouldn’t be such a bad idea.
I’d love to hear what you think.
Leave your thoughts in the comment section below.
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Gary Gensler – New SEC rules 2022 – Meme Stocks could surge
There are new SEC rules coming into play that could very well lift suppression imposed on so called ‘meme stocks’.
The SEC just released a report outlining the variety of ways they intend on protecting retail investors from market manipulation.
Heavily shorted stocks such as AMC and GameStop will skyrocket if these SEC rules are enforced.
And I’m going to break down why in this article below.
Welcome to Franknez.com – the SEC is proposing new rules that call for short seller transparency. In their report, they acknowledge what retail investors have been saying and have now come up with a plan.
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New SEC rules propose market transparency
Market News: New SEC Rules propose market transparency | SEC on short sellers | SEC on hedge funds – Meme Stocks
The SEC is proposing a new rule designed to provide greater transparency through the publication of short sale related data.
Short sellers will be required to submit a report on a monthly basis specifying their short positions and short activity data under the 13f-2 rule.
This proposal is significant because it’s going to provide regulators with insight on every short seller trade.
With this proposal in play hedge funds will have no other option than to report overleveraged positions, or refrain from imposing predatorial strategies.
Because short sell activity will be monitored, hedge funds are stuck playing fair.
The SEC has acknowledged that short selling has been used to manipulate the market to drive share prices down.
They also confirm retail investors have been targets of “short and distort”.
Short and distort is a strategy used to drive a stock’s share price down using publicity campaigns and then capitalizing from the drop.
Regulators acknowledge market manipulation in report
The SEC said in their report, “while short selling can serve useful market purposes, it also may be used to drive down the price of a security, to accelerate a declining market in a security, or to manipulate stock prices.”
This statement alone is very significant for many reasons.
The SEC doesn’t need to be convinced of market manipulation anymore, they’ve acknowledged it.
They understand exactly what’s happening in the markets and how it’s affecting retail investors.
Now it’s just a matter of finding solutions to lift the suppression being imposed on heavily shorted stocks such as AMC and GameStop.
Disclosure of short sell positions and activity could very well be the start of it too.
If you were slacking off at work but now have your boss micromanaging you, you’d be more inclined to refrain from slacking off, correct?
It’s this type of micromanaging we need to see regulators impose on short sellers so that the demand from retail orders accurately reflect on the price of a security.
However, there has been no way of identifying overleveraged positions or short sell activity to enforce no such acts are carried throughout the market.
That’s where rule 13f-2 comes into play.
13f-2 provides the commission for public disclosure:
The name of the issuer
Title
Class
CUSIP number (a unique identification number assigned to stocks and registered bonds in the United States and Canada.)
and number of short sales of each security
When enforced, this SEC rule will allow regulators to identify everything there is to know about a hedge funds short selling activity.
Community, this is quite big.
Public disclosures will occur every month.
“Buy to cover” rule and CAT firms
Proposed Rule 205 would establish a new “buy to cover” order making requirements for certain purchase orders affected by a broker-dealer.
The Proposal to Amend CAT would require CAT reporting firms to report short sale data not currently required that would enhance regulators’ understanding of the lifecycle of a trade – from order origination and through order execution and allocation.
This means the SEC will now have eyes on where a short sell comes from and where it gets processed and moved to.
Here is where naked shares may be exposed, recorded, and become obligated to get closed.
This Proposal to Amend CAT holds every party during the trade of a short sell accountable.
How do these rules lift suppression on heavily shorted stock?
The SEC says these proposals could help to advance the policy goal of investor protection by deterring market manipulation.
This means that when enforced, hedge funds will now be forced to play by the rules since all data is being recorded through a variety of parties, making it complicated to report inaccuracies.
The SEC on illegal short selling and “Bear Raids”
The SEC on Bear Raids – ‘Meme stocks’ plummet
The SEC’s report is filled with information retail investors have been raising awareness about for over a year now.
They briefly go over the spread of false information from which short sellers profit from the decline of a stock’s share price.
“Market manipulators may seek to spread false information about an issuer whose stock they sold short in order to profit from a resulting decline in the stock’s price.”
This is something Elon Musk just recently spoke to CNBC about.
Hedge funds and corporate media have played a big role in “Bear Raids”.
Bear raids are an illegal practice to plummet a stock’s price through concerted short selling and the spread of false or negative information about the target.
This influences public sentiment and opinion.
We’ve seen this illegal practice too many times with AMC and GameStop.
Platforms owned by News Corp. attacked AMC and GameStop by publishing articles to derail retail investors from purchasing the stocks.
As millions of retail investors bought ‘meme stocks’, hedge funds shorting the stocks lost billions of dollars.
CEO and founder of hedge fund Citadel Ken Griffin coincidentally has a stake in News Corp.
The SEC warns short sellers of “Short Squeeze” risk
A short squeeze poses massive risk to not only hedge funds and market makers but also to small short sellers.
The SEC did not miss outlining the risk a short squeeze has on short sellers in their market transparency report.
AMC and GameStop’s current reported short interest is more than 20% each.
This is more than enough short interest to squeeze shorts from their positions.
And because hedge funds have been overleveraging their positions, this is no ordinary play anymore.
Hedge funds now have a ticking time-bomb that may cause systemic risk.
Will AMC and GameStop experience a managed short squeeze?
Leave your thoughts below.