Money & markets
Short selling and the GameStop saga
11 min
How investors profit when a stock falls, why the practice is so controversial, and how a crowd of retail traders turned short sellers' own bets against them in the GameStop frenzy.
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Show notes
Short sellers face infinite financial risk because stock prices have no theoretical upper limit.
GameStop short interest reached one hundred forty percent of its public float through circular lending chains.
Melvin Capital lost fifty-three percent of its value in one month due to the short squeeze.
Retail traders used call options to trigger a gamma squeeze that forced market makers to buy shares.
The Securities and Exchange Commission identified individual investor sentiment as the primary driver of price spikes.
Market settlement cycles were shortened to T-plus-one to reduce future liquidity risks for retail brokerages.
In this episode
- 1Intro1 min
- 2The Mechanics of Betting on Failure3 min
- 3The Setup: GameStop and the 140 Percent Problem2 min
- 4The Squeeze and the Gamma Trap3 min
- 5The Aftermath and Market Integrity3 min
- 6Outro1 min
Sources
- Traders from WallStreetBets trigger a giant short squeeze on GameStop stock : Planet Money : NPR
- Lessons to learn from the GameStop episode - FCA
- GameStop short squeeze
- GameStop: the ethics of short sellers - Schroders
- GME Short Squeeze Explained: Chart, Timeline & Mechanics
- Short Selling and Short Squeezes, Explained · Boursel
- Short Sale vs. Short Squeeze: Explaining the GameStop Phenomenon
- The GameStop Episode: What Happened and What Does It Mean?
- Short Selling: Borrowing Shares Instead of Money | Money Lessons with Andrew Temte, PhD, CFA
- Short Selling: Borrowing Shares Instead of Money — Andrew Temte
- Explainer: How were more than 100% of GameStop’s shares shorted?
- Staff Report on Equity and Options Market Structure Conditions in Early 2021
- How GameStop And An Army Of Reddit Traders Exposed The Riskiest Market In Decades
- How Reddit Beat Hedge Funds Using Options Strategy: Veteran Trader - Business Insider
- Key Points About Regulation SHO
- Investor Bulletin: An Introduction to Short Sales | Investor.gov
- SHORT SELLING & REGULATION SHO
- Short Selling: Your Step-by-Step Guide for Shorting Stocks
- The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Goldman, Sachs & Co.(“Goldman” or “Respondent”).
- Efc20 335 sc13d.htm
- GameStop surges after report says Michael Burry is long the stock
- Why 'Big Short' Investor Michael Burry Is Going Long on GameStop - Business Insider
- 10K - FY19
- Document
- SEC.gov | Division of Trading and Markets:
- The GameStop Episode: What Happened and What Does It Mean?
- Staff Report on Equity and Options Market Structure Conditions in Early 2021
- SEC.gov | Short Sales
- SEC.gov | Division of Trading and Markets:<br>Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO
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