2 upvotes, 0 direct replies (showing 0)
How the fuck does that happen lol?
A company over-shorted the stock (promised way too many shares at a price way lower than the current price). Doing this can scare stock holders into selling because "What do these short sellers' know that I don't?"
The more short sales available, the easier it is to squeeze the short sellers. The higher the volume, the easier it is to squeeze, and the more likely a squeeze is successful.
A squeeze is when a short seller has to pay more to make good on a short sale then the price they promised to charge for the share.
The issue is that Melvin offered short sales that would require 40% more shares than were floating around. At that point, it is basically a guarantee that Melvin would have to scramble to make good. Assuming they could buy 100% of floating shares to make good, they would have to then buy back 40% of them to make on the outstanding short sales.
Now, it is unlikely they can buy 100% of the floating shares, so really they probably have to buy 30%, pass it out, then buy it back. Then they have to keep repeating the cycle of buying and delivering until they make good.
So really they set up a situation where there is very little risk for people pumping the stock price.
WSB's advantage here is that it is a sub of over 2 million people, so if they want, they could each pony up $40 and then collectively they have an easy $40 million to play with, which is a lot if a stock's price is low to begin with. And if they mess up and lose that $40, oh well, it is $40 bucks each from people that can probably afford it.
There's nothing here!