Topic: Amc stock short case and melvin capital leverage question (Read 161 times)

Normally let's say you own a stock and you agree to a stock enhancement program by your broker, then the broker can lend that stock to a shorter who then can sell it to open a naked short position in the market, this is available for both retail and institutions.

However what happens in some sinister cases, is that the broker gets the lending fee and then lends the same stock again held at its custody, so now you might end up with 100 shares long of a certain stock (let's say GME), but that same quantity might get shorted 2-3x against you; especially if some hedge funds / institutional investors who have close knit relationships with the brokers have a vested interest to keep the price down.

This obviously creates huge problems against fair and orderly market participation...





Hahah, yes that's an excellent idea, there is great overlap between wallstreetbets degens and crypto degens...

Aren't naked shorts illegal? Plus isn't it required under the law that market makers should always provide liquidity in both the bid and ask sides? But OK, whether Melvin Capital cheated or not isn't important anymore. They were still out-traded by the plebs who coordinated their trades in Reddit, a public forum. Haha.


They thought that they already had the market "arranged fraudulently" that they would never lose. Hubris.


Plus their Subreddits were banned, which made it harder for the community to coordinate. Perhaps next time they use more than one stock brokers, and coordinate in Discord + Telegram.

Should theymos welcome them in the forum? I believe their plebs and our plebs could learn from each other.

There are several factors at play in that debacle. Melvin Capital CEO is well versed in trading and he increased his short positions with the confidence that he was shorting GME in much greater quantities than the free float, so even if everyone else went long, there won't be enough shares to push the price against him...

However he did not factor in his calculations that the retail community would discover this anomaly, which clearly should have been illegal and proceed to rally against hedge funds to buy all the free float and never sell. Therefore eventually, the increasing borrowing costs of holding a short position drives the shorters to margin calls and bankruptcy, even if they pull the manipulative trick of shorting beyond the free float.

Nevertheless, in another notoriously criminal example of "too big to fail", dark overlords of corporate america stepped in and this time they literally removed the buy button from the then favorite retail app Robin Hood, arguably the most sinister manipulation of free markets ever observed...

Result was GME eventually calmed down and reverted to a more modest valuation, as the holders could not buy anymore but only were permitted to close their positions, so most of the hedge funds could cover their shorts without blowing up (and even profited on the downturn), and Melvin Capital was just the token sheep that was allowed to "fail" to maintain a semblance of legitimacy. Another pure evil chapter from the history of Wall Street...

It was not that the people behind the company didn't know what they were doing. It was Hubris. Because they have gotten very used to winning for so long that they underestimated that a group of plebs from Reddit who were working together could play an institution in their own game, and out-trade them. Plus because of Hubris and believing they won't lose, they kept adding more money in the trade and thought that the plebs of Reddit would stop and give up.

This is a story that people are quickly forgetting and which I don't think is related to the current dispensation anymore. However, Melvin Capital is a hedge fund, an American investment management firm that by its mode of operation hedged the positions of investors. That's the norm for hedge funds.

They lose when you gain and gain when you lose. This is not about the leverage of a thing but their positions were unfavoured with meme stocks and adequate liquidity was against them.

The reason your post is not getting any response is that you just post a question without any backstory in form of quotes or links to the articles. Moreover, members here mostly trade cryptocurrencies, so if you are to ask about a stock or any other form of commodities, it's better you start off with some background summary to bring members on the same page. 

They have the answer


Limit orders also eventually get executed and this can be visible in the order history or different position hit maps if the position is huge.

Are you surely you know what trading using Leverage means?

The question is what leverage the Melvin capital used ?  
And why he did not used limit orders to short ? If only using 2x-3x leverage wich i think he did used then just before the liq price to use next limit order with a bit of higher quantity Even 5x Will move liq price way up and it could be safe.
Or did Melvin capital used futures or options trading way to short it ?

Then I think the melvin capital ceo has no knowledge about much of trading ?
Did he learned hard way so next time he Will be better