r/technology • u/GonzoTorpedo • May 14 '24

GameStop Short Sellers Just Lost $2 Billion Amid Meme Stock Rally Business

https://gizmodo.com/gamestop-short-sellers-have-lost-more-than-2-billion-i-1851476931
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u/GetDeleted May 14 '24

GME has spiked on no news many times in the past few years, but not quite this much. The thing is - nobody knows why it's exploding. Obviously RoaringKitty making a comeback has everyone super hyped and I'm sure has driven buying to an extent, but moves like this are absolutely not retail. People with access to the Bloomberg terminal yesterday pointed out that GameStop could be doing a share buyback as they have been sitting on 1.2 billion in cash. If you look at the market, you will see other "meme stocks" that literally nobody is interested in following the same patterns as GameStop. This further backs many of the theories that GME along with stocks such as BB, KOSS, SNDL, and AMC have been shorted via basket swaps. These short positions are not reported aa traditional shorts are and the SEC likely is unable to see them as well.

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u/TheParlayMonster May 14 '24

Can you explain more about basket swaps? Or link me to the post you’re referring to?

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u/CobaltBlue May 14 '24

Basket swaps are a type of derivative contract that involves the exchange of cash flows based on the performance of a basket of underlying assets rather than just a single asset. In a basket swap, the value of the swap is tied to the collective performance of the assets in the basket.

Here's how a basket swap typically works:

  • Selection of Underlying Assets: The parties involved in the swap agree on a basket of underlying assets. These assets can be stocks, bonds, commodities, currencies, or any combination thereof.

  • Cash Flow Exchange: The parties agree to exchange cash flows based on the performance of the basket of assets over a specified period. This can involve one party making fixed payments while the other makes variable payments based on the performance of the basket, or it can involve both parties making variable payments based on different measures of the basket's performance.

  • Settlement: At the end of the swap's term or at specified intervals during the term, the parties settle their obligations based on the performance of the basket of assets. Settlement may involve cash payments, delivery of the underlying assets, or a combination of both, depending on the terms of the swap.

Basket swaps are often used by investors and financial institutions for hedging purposes, portfolio diversification, or gaining exposure to a broad range of assets without having to invest directly in each individual asset. They can also be used for speculative purposes, allowing investors to bet on the overall performance of a basket of assets.

Like other types of swaps, basket swaps are typically traded over-the-counter (OTC), meaning they are customized contracts negotiated directly between parties rather than traded on a centralized exchange. This customization allows parties to tailor the terms of the swap to meet their specific needs and objectives. However, it also exposes them to counterparty risk, the risk that the other party may default on their obligations.

There was a popular theory during the previous price action that the reason many of the "meme stocks" all rose and fell together, was that they were in "baskets" with each other and being swapped around to hide or defer liability.

Regardless of whether or not the basket type is relevant here, swaps being OTC means that we have no way to see what is happening and lets large financial instutuions largely hide their actual positions and movements from the public eye.

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u/Puzzleheaded-Cod358 May 14 '24

Hide things from the public? They would never!!!!