| Author | Source |
|---|---|
| u/Criand |
0. Preface
Not a financial advisor. I also have no financial experience or qualifications. Thought Iâd make that clear per a commenter on my last post who wasnât happy with me. ;)
Also apologies if some of this doesnât read right. A bit buzzed typing it up lmao. Iâd be happy to clarify anything in the comments.
Hello apes. You might remember my previous posts. But just in case, Iâll add them here once more because Iâd like to expand on them a bit further.
The Danger Zone and the SI Report Loop
Summary:Â Short positions are required to be reported twice per month on âShort Interest Report Settlement Datesâ. Between each of these settlement dates, the price has a volatile move both up and down. Consistently between each cycle is a higher price floor. Melvin received their $2.75 billion cash injection the day $GME spiked to approximately $160. They have crashed the price from $350 every time. As they bleed money, it appears that the margin call price lives in a âDanger Zoneâ between $160 and $350.
Net Capital Bomb - AKA The Margin Call
Summary: Citadel and any other MM that have been complicit in naked shorting of GameStop now worry about net capital (or in a sense their own Margin Call). They must have sufficient capital to support their debts, such as short positions, so that they can payout in the event of a default. The more shorts they open, the higher debt they have, and thus the more capital they need to raise in order to avoid going net negative and violating Net Capital Requirements Rule 240.15c3-1.
Iâve seen a TON of posts regarding TA, wedges, MACD crossing, RSI, âbreakout signalsâ, etc. but I always wondered why these patterns repeated. And of course, wondered why nothing would happen even if we had âbullishâ breakout signals. Weâll see posts about wedges breaking and attributing it to âshorts using all their ammoâ or âwhales buying it upâ but I have reason to believe that the price spikes, both up AND down, are caused by the shorters. Donât stress about the daily movements. Seriously. Your mental health will thank you. :)
GME is a curious case. For that I truly think there is an underlying reason for the price movements. Which is why I started looking into major option dates, came up with T+13, scrapped T+13, and eventually arrived at the SI Report Loop theory. I mean, that isnât to say the major option dates still donât play a role here - in fact Iâm going to touch on that subject in this post as well.
This is all just a working theory trying to explain why the price is moving the way it is. I would love to continue building on it, fitting in pieces from other apes, or until the theory crumbles. But so far, it has made me enter complete Zen Mode. I donât even care about the price. Iâll explain why.
1. Hedgies Are Trapped Between a Rock and a Hard Place
Theyâre truly stuck. Things were honestly looking in Melvin/Point72/Citadels favor back in February but it has since been a huuuge middle finger back at them because retail got their second wind as of DFV doubling down on February 19th.
Letâs take a look back at the data /u/broccaaa found for SI% versus PUT OI. This is my favorite chart, ever, by the way. When ever I have doubts I just look at this chart.
The top, in orange, is PUT OI. The top, in blue, is CALL OI. Both PUT and CALL OI is reported in millions.
The bottom, in green, is SI%. The bottom, in blue, is FTD % of float.
When the January runup happened, the shorters hit the motherfucking emergency button to block buys on exchanges. This allowed them to fake-out to the world that they âcoveredâ by dropping SI% like a rock. This killed motivation worldwide and the price hovered around $40 throughout February. How did this happen? Well, most likely by hiding the shorts in PUTs. Youâll see that PUT OI goes absolutely insane when the SI% dropped. How insane? At itâs peak, the PUT OI was roughly 2.00e6 = 2 million PUTs = 200 million shares worth. Does that sound normal for a stock with only 70 million outstanding shares and only ~50 million float?
Whatâs even better is from this data that /u/yelyah2 collected, we can see what options were used to hide these shorts. Iâve highlighted in red the data from January 26th, just before the craziness occurred. And then you can see what the PUT OI was for each date prior to expiration (dashes following). As you can see they spread their shorts pretty evenly between these major dates.
So itâs just a working theory of course, but every single one of these dates expiration should result in shorts popping out. In this case, roughly 400,000 OI = 40 million shorts per major option expiration (Feb 19, March 19, April 16, July 16, January 2022). They have to choose between a rock and a hard place:
A) Delaying the shorts once more by hiding them in more PUTs, costing money to do so
B) Let the shorts be calculated in the SI% report upon the SI Report Settlement Date.
Iâd like to note that with either A or B, the price is not effected. They are hiding the shorts in PUTs. Theyâre not exercising these PUTs. They are simply storing their shorts away for a later date, but it costs them money to do so each time.
Which then enters the Net Capital theory that I posted about.
If they want to delay their shorts longer, theyâll need to spend more money. The more money they spend, then the less capital they have. The less capital they have, the easier it is for them to go net negative and essentially become margin called. Ever wonder why crypt0 and other assets are doing weird pumps and dumps? Yeah. That could be why.
They are probably on their last legs trying so hard to raise capital to push things out while simultaneously trying to remain net positive. Check the dates when d0ggi3 c0in started to pump. January 28th. April 14th. May 4th. Interesting coincidences, right? Am I crazy to think weâll see another d0ge pump on May 13th-May 17th, the next cutoff for net capital?
2. Why the price spikes up AND down are artificial
Iâm going to steal some TA. Though only OBV because thatâs actually pretty significant. For any normal stock you should see OBV pretty much trending with a rough shape of the stock price. GME is⌠different. Thereâs been very little volume on the spikes downward, implying that none of retail is selling and that the spikes down are artificial. And I truly believe that retail is not selling. I mean sure, thereâs probably some paper hands out there, but theyâre pretty much gone. Sorry /u/HomeDepotHank69 - Iâm stealing your OBV chart from your Theory of Everything:
But the OBV charct doesnât really explain why the price drops are artificial. Itâs literally just a chart of OBV increasing over time. It theoretically shows that retail isnât selling, but what exactly is going on here??? Thatâs what has always bugged me. Because I want to know the underlying reason as to why the price moves. Which then led to the SI Report Loop theory.
To recap from the âSI Report Loopâ theory, below we have a chart showing each SI Report Settlement Date. The Hedgies need to wipe out their shorts by these dates, otherwise they risk a spike in SI% upon the receipt date. They do not want SI% to spike, otherwise it screams to the world, âWe havenât covered shit!â. So ever since January 29th theyâve been stuck hiding their short position because they canât risk having retail come back in. Retail will shove a big olâ banana up their ass if they let SI% skyrocket again. But, obviously, from the price increase since February 24, theyâre fucked anyway because itâs costing them more to hide their shorts every time.
Iâll refer to the time between these Settlement Dates as a âSI Report Cycleâ.
Not only do they have to worry about hiding new shorts they open up during these SI Report Cycles, they need to worry about FTDs from retail buy pressure, and potentially old shorts that were hidden in options expirations that I mentioned in Section 1. For example, if 400,000 PUTs carried shorts and expired on March 19, theyâd go, âOh shit. We have to deal with those tooâ. Thatâs MORE money they have to spend in that cycle. With a higher price floor, thatâs even MORE money to continue their bullshit.
It is not a cycle of FTDs. The FTDs are satisfied when they first pop up. They satisfy these FTDs with synthetics, thus increasing their total short position. The FTDs are not âpushed outâ but rather their short position is pushed out.
The cycle they battle is delaying their short position and avoiding the true SI% from appearing. Which at this point is probably well over 200%. Pushing these out costs them money, but does not influence the price because they donât ever exercise the PUTs used to hide the shorts.
The artificial spikes/drops are due to shorters combating retail buy pressure which occurs between SI Report Cycles. The SHORTERS are the cause of the spikes up and the spikes down.
If you look closely, we get volatile movement up, and volatile movement downward between each SI Report Cycle. Every. Cycle. Now why is that happening?
I am convinced that the volatile movement in price are caused entirely by hedgies fucking with the price in an attempt to suppress retail and shake them off. But their attacks are getting weaker because of wasting money on hiding shorts from major options in PUTs and getting closer and closer to going net negative in their net capital calculations.
Anyways, hereâs what most likely happens in each SI Report Cycle:
Retail buys in. FTDs pile up because they canât find legitimate shares.
Synthetic shares are created by shorting the stock to suppress the price. Price goes down.
Synthetic-covered ITM CALLs are bought up by shorters who need to deliver FTDs. Immediately exercised and price goes back up (net neutral effect, the synthetics shorting and then the FTDs being satisfied cancel out the volatility)
The price going into the next SI cycle is the âtrueâ price due to retail buying. Itâs consistently going up because retail is buying and not selling. A slow burn upward.
They hide any additional shorts with OTM PUTs
Weâre seeing the price slowly rise because retail is applying buy pressure and not selling. If you removed all the fuckery, we would have seen the price steadily rise over time from Januaryâs $30 price point to todayâs ~$160 price point. Every single spike up is due to hedgies covering FTDs, and every single spike down is due to hedgies suppressing the price. THERE IS NO FRIENDLY WHALE causing these spikes. Each spike is caused by ITM CALLs being exercised. There is no âdayâ that retail suddenly has mass buy pressure causing the spikes. It is ALL because of the shorters are stuck trying to suppress the price and simultaneously having to satisfy FTDs between each SI Report Cycle.
Letâs draw a rough estimate of price movement in green if no fuckery occurred. Connecting the price floors from January until now. Hmmm. Looks similar to OBV. Doesnât it?
Letâs roll back in time to January 13th. GME was the craze around the world. The price point was a meager $30 - many people could enter the game. Due to the hype, even the higher prices of $150-$400 was still attractive for enough buy pressure because the shorters were almost guaranteed to be fucked back then.
You know what happened in January? FTDs skyrocketed.
The first oh-shit-what-the-fuck-do-we-do moment happened to hedgies:
Retail buys in. A LOT. FTDs continue an insane pile up because they canât find legitimate shares since it was already over 100% shorted at the time.
FTDs need to be stopped. Buys are shut down so that they can satisfy the FTDs and hide their short position to try to kill off retail motivation (we covered! Donât come back now!)
Synthetic shares are created by shorting the stock to suppress the price. Price goes down coupled with retail paperhanding.
Synthetic-covered ITM CALLs are bought up by shorters who need to deliver FTDs. Immediately exercised and price skyrockets.
They hide any additional shorts with OTM PUTs
Combination of #2 and #3 caused the January fake squeeze. All FTDs are now satisfied and theyâve hidden their short position, but in this process OPENED MANY MORE SHORTS BY CREATING SYNTHETICS.
And thus, the entire January price spike was artificial and the drop was mostly artificial (note that as of exiting the January squeeze it still resulted in a higher price floor).
The price died off a bit from January, and it probably was going to swing back into the shorterâs favor.
âŚUntil DFV doubled down in February. It gave retail a second wind. A shitload of buy pressure entered due to the cheaper price, resulting in many FTDs that had to be satisfied through more synthetic shares. It was essentially a repeat of January because it was a cheap price point for retail to enter. Ever since then it has generated a lot of diamond goddamn hands because despite the artificial price swings, the game was still on.
And then of course, over time, the price has started to converge around $160 due to it being a little bit more expensive for retail to enter. We see higher price floors, but its tapering off because itâs getting more expensive for retail to buy in. Itâs easier to have massive amounts of FTDs from buy pressure in the $40 price point than at the $160 price point. But thatâs not to say retail is losing. Iâm simply explaining why it jumped so fast from a $40 price floor to a >$100 price floor and has since tapered off.
Literally any catalyst that causes buy pressure surge could cause a repeat of January and February because theyâd have to deal with a shitload of FTDs.
GME has been tapering off with less volume because, well, less retail buying in over time due to a higher cost to enter. The price has been converging around ~$160 since March, and I believe thatâs all because of the higher price point of $160, so itâs a little bit more difficult to get a lot of retail buy pressure due to it being more expensive than it was back before the February runup.
They continue to match the retail buy pressure with shorts (~50% short volume each day) to suppress the price, continuing to cause these ITM CALL purchases to satisfy retailsâ FTDs. But itâs a fruitless effort because barely anyone is selling despite their tricks. And we see that itâs fruitless because the price floor rises each SI Report Cycle. Every. Single. Time.
So now itâs getting to the point where the price is back to the January levels when Melvin received their cash injection. Theyâve been bleeding money trying to suppress SI% and dealing with FTDs by creating more synthetic shares. They can continue this effort⌠but it doesnât seem like they can much longer.
Hereâs a picture of Melvin/Citadel/Point72 as of this moment:
3. Hello old shorts - Why SI% might skyrocket
Iâll leave you with this thought. Iâll call back to the SI Report Dates. In there, youâll find three columns:
Settlement Date: The date at which short interest positions must be determined.
Due Date: The date at which the report of the SI from the settlement date is due by.
Exchange Receipt Date: The date when FINRA finalizes the reports and delivers them.
Settlement date. They NEED to have their shorts hidden in PUTs by then or else they are reported in the SI%. (Hey they could very well have figured out a new trick to hide shorts!)
In February and March, the boys probably had enough capital to combat the 400,000 PUTs expiring and shitting out their short positions on them on both February 19th and March 19th. Since then, they have probably been struggling with net capital and need to keep it high enough while also hiding their short position. (Hello d0ggi3 c0in pump.)
If April 16th crapped out a bunch of shorts once more, then they would have had to hide them by April 30th Short Interest Settlement. If they have not hidden them, then the receipt date for April 30th SI% is May 11. We could very well see SI% skyrocket on May 11. Note: This is NOT a price increase. This is the SHORT INTEREST percentage that could increase. Basically saying to the world, âHey you remember how we said we covered? Haha. Good joke. Right? Please be gentleâŚâ.
But of course, we saw some assets pump and dumping. Which might have helped them raise enough capital to hide those shorts again. Even then, theyâre stuck between a rock and a hard place of retail continuing to buy and very few paper hands selling.
Every SI Report Cycle, they need to satisfy new retail FTDs with synthetic shares, increasing their short position. (Price spikes up due to these ITM CALLs)
Every SI Report Cycle, they want to try to kill retail buy pressure by shorting the stock, also increasing their short position. (Price drops down or spikes down)
The end result is the synthetics and ITM CALLs cancel each other out. The âtrueâ price is revealed going into the next SI Report Cycle.
If any SI Report Cycle has a large amount of shorts spill out that were hidden in options, theyâll need to determine if they need to delay them or let the shorts get reported on SI%:
If they delay the shorts again through PUTs, it costs them money. They have to worry about their net capital and not go net negative. If itâs going to cost too much, they need to pump/dump something to raise the capital.
If they donât delay the shorts, then the SI% can skyrocket, initiating retail buy pressure again because it shows they havenât covered.
Every SI Report Cycle and delaying shorts they bleed money, making net capital an ever-looming presence. They canât pump and dump assets forever.
Itâs just an endless cycle of them making more and more synthetic shares to satisfy FTDs. Digging a deeper grave every day.
I wonder⌠how long can they last?
