The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

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u/dejf2 Reddit

DD 📊

APR1 Edit: 708,000 more shares laundered today, we have officially entered the new cycle of whatever this is, new data: https://www.reddit.com/r/GME/comments/mi31m6/deep_itm_calls_activity_pt2_april_1st_708000_ftds/

TL;DR:

Today (MAR31), $52.94million was “spent” simultaneously on deep in the money call options for GME, ranging from 3C to 19C. None of the previous days show such activity, but we have seen this stuff in the past already. Today, I tried to size the rabbit hole.

Back in February, a number of apes identified weird transactions taking place in deep-in-the-money calls, mainly at $12 and $15 strikes. First people thought it was some kind of oddball bullish play, but it soon transpired that these never appear in the Open Interest, they are seemingly immediately exercised:

https://www.reddit.com/r/GME/comments/m05jed/mystery_solved_the_deep_itm_calls_are_coming_from/

Why would somebody do that? Apparently, to reset the clock on their FTDs.

This SEC paper discusses the mechanism of this practice: https://www.sec.gov/about/offices/ocie/options-trading-risk-alert.pdf

For the length of this piece, let’s call them ‘deep ITM call anomalies’.

Today, this activity is back.

I used these clues to trace back days with a lot of activity in these particular options, which then led me to find more call option types being used for the same practice.

In one evening, I identified approx. 30 call option strikes and expiries that have been used for this practice since January 1, and I believe I have traced where approximately 44 million missing GME shares have been hidden (cumulatively). I prove that they are not organic activity by identifying their hallmarks, and that this practice is taking place cyclically.

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The ‘deep ITM call anomalies’ are back MARCH 31.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

Call option spending March31 from OptionSonar: https://www.optionsonar.com/unusual-option-activity/GME/latest-trades,

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

Yahoo Finance shows they used APR16s for 7-19Cs, 21JAN 2022 4.5Cs, and 19 NOV for the 3Cs. The 1:58pm timestamp was on all the relevant transactions (I hit the screenshot limit I can’t show ya)

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

Checking the OptionSonar and Yahoo Finance data against each other, we can verify that approximately 303900 FTDs were reset using this technique today.

None of the previous days have shown this activity. But we have seen it before.

Are you ready to go down this rabbit hole?

Historical call data is from Market Chameleon: https://marketchameleon.com/Overview/GME/OptionSummary/Volume

After tallying up the historical volume of the type of Call Options used for this exercise today, I determined that 6th and 8th of March were the heaviest days for this activity, with 8000+ contracts “traded” across the APR16s 7-19Cs, NOV 4.5c, and JAN2022 3c.

So following the two favorites, APR16 12c and 15c, there were clear patterns that would jump out at anyone. They were abused heavily in the last week of Feb / first week of March:

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

APR16 12C - aka Citadel’s Delight - 24052 contracts traded while Open Interest changes by 3 - between FEB 25 and MAR 12, or 2.405m FTDs reset.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

APR16 15C - aka Melvin’s Truffle - 10732 contracts traded between FEB 25 and MAR 11, or 1.073m FTDs reset.

But there are way, way, more.

Furthermore, this is not new:

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

This is where the rabbit hole starts getting interesting. This stuff was happening way before any of us knew what a stonk was.

Below, you can follow my process on the rabbit hole from 10 Mar activity to identifying manipulated strikes that led me to discovering this has been happening rampantly before the January rally.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

Full spreadsheet of all the relevant calls. Some of the ones I have identified above might be missing from the final cut, if I found something that pointed to organic volume or another confounding variable. I just forgot about the FEB5 expiries too, and I’m not gonna redo all the charts now. :) What’s a 100,000 FTDs either way between friends?

Let’s look at the full timeline of this activity:

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

Volume of ‘deep ITM call anomalies’ The thin blue line is you guessed it - SEC Fail to Delivers!

You may think that this volume of call options around the squeeze time may have been to do with people who diamond handed them selling them or exercising?

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

So what does this activity correlate with?

Let’s get some data from an “industry thought leader”, S3:

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

https://twitter.com/ihors3/status/1370416875490971651

SUPERIMPOSE!

r/GME - The SI% is fake. I found 44,000,000 million shorts that had their FTDs reset since January 1st using DEEP ITM CALLS. Identifying call option types used for this practice and timeline of events.

Huge drop in reported short interest correlates with huge volume of ‘deep ITM call anomalies’ in January. As soon as the ‘anomalies’ disappear, publicly announced short volume stabilizes. Little blips of ‘anomalies’ correlate to small drops in SI. The reappearance of anomalies from Feb25 correlates with SI ‘decreasing’.

I believe we can also see a correlation with the price.

This can be for one of two reasons:

  1. The shorts are buying what they can on the open market to close some positions during these times, and resetting the FTD clock on the remainder with this practice.

  2. The rising price puts their position at more risk and they scramble to reset the FTDs.

This seems pretty simple?

I agree. This is out in the open, basically. I mean, I found it the moment I decided to find it. This is why I would lean towards 2) The rising price puts their short position in more risk and they scramble to reset the FTDs.

  1. 13th of January - aka ‘The Day when people realised DFV might be right’ - Open 20.42, High 38.65, Close 31.40 - the price doubles after 13 days of staying around the $20 level - 1.6m FTDs are reset that day with this activity.

  2. 22nd January - Open 42.59, High 76.76, Close 65.01. 2.9m FTD are reset that day, and 3m a day are reset until Jan 27.

  3. January 27 - The day it really squoze (for now) - after closing at 147.98 the night before, GME opened at 354.83, reached a high of 380, and closed at 347.51. Immediately, 6.3m FTDs are reset that day, 4.68m the next day, and 3.5m+ a day for the two days thereafter.

  4. As soon as the price is contained at around $50, this activity stops.

  5. February 24th - aka The Day We Understood We Aren’t Crazy - Open 44.70, Rally starting at 3:15pm to Close 91.71, Highs of 200 in Aftermarket.

  6. Feb 25 opens at 169.56. Deep ITM anomalies resume, with 800k FTDs reset FEB25, 26, and 27th. Altogether, 7.15m FTDs would be reset until March 11th.

From this, I would lean towards the hypothesis that resetting FTDs with deep ITM calls is a knee-jerk reaction - the simplest, most stupidly obvious and lazy method of doing it, and they are perhaps doing it when caught off guard, or when there is no better solution.

I might be wrong with my thinking here and I invite you to think about how I could be wrong here and improve our shared understanding.

What are the hallmarks of this activity

  1. Stable Open Interest

  2. 2x-20x Multiples of the open interest traded a day for 9-11 days, then back to normal, almost zero volume.

  3. Blocks of 20, 50, 100, 200, 500, even up to 2000 on the day of The Minor Squozening (JAN27)

  4. VAST Majority from the PHLX exchange.

Is this the full picture?

No. This has been happening with many more call options. For many of those, there would be what I could identify as significant organic volume, but still peppered with blocks of 100 and 200 from PHLX. There are some where just blocks of 20-40 were used. I did not investigate fully the expiries that were being used prior to January 22. I could not risk skewing the conservative estimation.

All of the above data is based on the strikes and expiries that were popular with the hedgies in February and early March:

FEB19 $5c FEB19 $15c FEB19 $16c FEB19 $20c MAR19 $20c MAR19 $30c APR16 $4.5C APR16 $5C APR 16 $7C APR 16 $10C APR16 $12C APR16 $13C APR16 $14C APR16 $15C APR16 $16C APR16 $17C APR16 $18C APR16 $19C APR16 $5C JUL16 $5C JUL16 $6C JUL16 $7C JUL16 $10C JUL16 $12C NOV21 $3C NOV21 $5C JAN 2022 $1C JAN 2022 $4.5C JAN 2022 $5C JAN 2022 $7C JAN 2022 $10C JAN 2022 $12C JAN 2022 $15C JAN 2023 $7C

Does the SEC know?

Of course.

Here is a quote from their 2013 paper:

The Second Transaction to “Reset the Clock”

Assuming that XYZ is a hard to borrow security, and that Trader A, or its broker-dealer, is unable (or unwilling) to borrow shares to make delivery on the short sale of actual shares, the short sale may result in a fail to deliver position at Trader A’s clearing firm. Rather than paying the borrowing fee on the shares to make delivery, or unwinding the position by purchasing the shares in the market, Trader A might next enter into a trade that gives the appearance of satisfying the broker-dealer’s close-out requirement, but in reality allows Trader A to maintain its short position without ever delivering on the short sale. Most often, this is done through the use of a buy-write trade, but may also be done as a married put and may incorporate the use of short term FLEX options. These trades are commonly referred to as “reset transactions,” in that they have the effect of resetting the time that the broker-dealer must purchase or borrow the stock to close-out a fail. The transactions could be designed solely to give the appearance of delivering the shares, when in reality the trader has no intention of meeting his delivery obligations. The buy-writes may be (but are not always) prearranged trades between market makers or parties claiming to be market makers. The price in these transactions is determined so that the short seller pays a small price to the other market-maker for the trade, resulting in no economic benefit to the short seller for the reset transaction other than to give the appearance of meeting his delivery obligations. Such transactions were alleged by the Commission to be sham transactions in recent enforcement cases.30 Such transactions between traders or any market participants have also been found to constitute a violation of a clearing firm’s responsibility to close out a failure to deliver.

https://www.sec.gov/about/offices/ocie/options-trading-risk-alert.pdf