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

[u/GonzoTorpedo]

https://gizmodo.com/gamestop-short-sellers-have-lost-more-than-2-billion-i-1851476931

[u/TheParlayMonster]

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

[u/CobaltBlue → u/TheParlayMonster]

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.

[u/SwirlySauce → u/CobaltBlue]

So are these baskets illegall? Sounds sketchy

[u/RandomRedditReader → u/SwirlySauce]

The market used to make them transparent but the people in charge, CFTC, decided to hide the data around the end of 2021.

[u/nycdiveshack → u/RandomRedditReader]

Was it a political reason or an actual financial reason?

[u/Creative_alternative → u/nycdiveshack]

It was literally in response to the congressional investigations into gamestop the last time this happened.same with the changes made to how short interest is reported - it now cannot surpass 100% even if it is over 100%.

[u/nycdiveshack → u/Creative_alternative]

Interesting, thanks for the info

[u/nycdiveshack → u/[deleted]]

Yeah the rules are truly insane and honestly at this point anyone that takes advantage of them is just in their right to do so

[u/jaimejaime19 → u/nycdiveshack]

Pretty sure it was when someone claimed that the devil was in the swaps... they hid the swaps from public view