I keep seeing over and over again that hedgefunds MUST buy stock if the price goes up, and that 100% shares short is some sort of trigger that means everyone must buy.
There is another common misconception that stock cannot be created, that there is some finite supply. People should take note that AMC has (shrewdly) issued a lot of new shares in response to their stock price climb.
There's a few issues for the short sellers though, one is that their brokers are charging them interest on their borrowed shares as a function of their share price. The higher the share price, the more interest they have to pay. Not just that, the harder the shares are to borrow, the more interest they have to pay. This creates a ticking clock. During the initial BYND squeeze, some people were being charged 100% APY.
Then of course as it goes up and they bump up against their personal (or their brokers' personal) risk tolerance, they're forced by them to buy.
Is that what happened? Did hedgefunds run out of credit? The problem with this reasoning is that it takes rules which apply to small investors trading through an intermediate platform and applies them to Melvin. It's just false that anything would be a legal or rules-based trigger for Melvin to buy. They don't HAVE to buy like people have been claiming. Melvin isn't trading on Robinhood.
Melvin may not be trading on RH, but they are trading on a prime broker who has a personal risk tolerance expressed as a function of mark to market losses. Once you exceed your collateral the broker is on the hook for your losses and “shorting GME” is not part of a prime brokers business model.
I keep seeing over and over again that hedgefunds MUST buy stock if the price goes up, and that 100% shares short is some sort of trigger that means everyone must buy.
There is another common misconception that stock cannot be created, that there is some finite supply. People should take note that AMC has (shrewdly) issued a lot of new shares in response to their stock price climb.