$GME - February Run, Final UpdateThis cycle is looking extra interesting.
Today is the day where the top 30 NSCC members (Banks) may start depositing money to the NSCC for this month's option clearing that start on the 18'th of February this month. Typically market orders stemming from option clearing hit the market STARTING next week TUESDAY. The first batch that hits the market typically is sudden and unexpected and causes 1 large daily candle.
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Currently GME's short utilization is at 100% and has been for an entire week. Short utilization at 100% basically means the following :
>There are people out there that believe a stock's price is unfair and should go down.
>Said people BORROW shares for a tiny rate per day or year (1.8% for GME, fluctuates to 2.6%).
>Said people then use these BORROWED shares and either sell them(Oversimplification) at opportune moments to cause the price of the stock to go down.
>Said people also use these borrowed shares to sell calls or perform other complex option strategies that help in dropping a stock's price.
As the price of a stock drops, actual stockholders who own shares in said company decide to sell to cut their losses. This makes the price of the stock go down more. This is the intent of a short seller.
Returning The Shares: Eventually the short seller needs to buy those shares back and return them to the lender. He does so after he's forced to, or has reached his shorting target price. Once he buys the shares back, the price of the stock will increase, but because on the way down, the short seller made other people sell their shares too to cut their losses, the short seller has managed to buy back the same amount of shares a bit cheaper. He pockets the difference, pays the borrow rate to the lender & hopes he's made a profit.
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To quickly recap, short utilization is at 100%. This means that from a pool of 700k share lenders, all have lent out all of their GME shares for shorting purposes. Obviously there are likely SOME lenders as well as institutions that are not within this 700k pool of lenders and so while we're at 100% short utilization and for 1 straight week, it doesn't nessesarily mean that there are no more shares to be used to short the stock with.
Having said the above, there have been noticeable moments yesterday & today where for just a few minutes, VIX, SPY, XRT, IWP and GME itself weren't following each other as they normally do or should. This has never happened whilst the short utilization was below 100% and has only started happening within this week. This is either GME's mythical negative beta showing it's teeth and/or it's a sign of depleting lendable share pools.
The only other time GME had 100% utilization was in December 2020 and it was like that for 2 weeks straight before it started dropping. After the drop, GME ran like crazy for 2 months. We are in what looks like the same situation now and the timing is impeccable.
Next week when the cleared option flow hits the markets, in reality, these orders can be mega bullish or mega bearish. All i know about this is that there's a FIFO/First in First Out rule to option clearing and i can only assume that this means that the first options in at the start of this month & quarter are the ones that will get Netted First, and so on and so on. GME has ran every time during these clearing cycles and the next one is on 22/2/22 (Tuesday or Two's day... sorry).
So far out of the 4 quarterly runs / cycles of 2021 for GME, 3 ran up successfully as expected as you can see in the chart above whilst the last one in November was slightly failed. I believe that this is where exactly shorting began and is the cause the official Short Interest/SI of GME has increased from 12% of the total free float to 20% of the total free float.
With 100% of known lenders having lent out their shares & GME inching upwards, the shorts are in danger of having to buy back the shares they shorted at a loss or at the least, earlier than they expected or hoped to due to a not so infinite GME share free float thanks to the recent wave of DRS/Direct Registration of shares by GME holders who are exiting regular brokers & are transferring their shares out of those brokers and directly to a company that lets you register your shares DIRECTLY to your own name, something which all brokers do not do.
Your broker actually owns your shares, they are in your broker's name. That's how your broker is able to also lend out your shares for a profit for themselves. Typically this lending of shares only happens to accounts that trade on Margin as "strict" segregation must exist for all brokers for "Margin" & "Cash" accounts. GME holders have stopped using margin since last year & have begun to register their GME shares in their own name as there are unconfirmed signs that perhaps "Cash" and "Margin" account segregation is being violated.
When you buy shares from a broker, since they are in the broker's name, these shares don't typically count towards the total float of the company you're buying. GME has a free float of ~38 million available shares (Actually a lot less than that) even as the entire world bought GME in 2021 January, the entire free float was never locked.
By Directly Registering your shares to your name using GME's transfer agent (ComputerShare), you both fully own your shares and they cannot be lent out to people that will use them to short the same stock you just bought & you also actually truly lock part of the total available float of GME's shares thus truly reducing the suppply & thus truly driving the demand up for the same shorters who borrowed lendable shares to short the stock with.
With minimal suppply of GME available after everyone directly registering their shares & locking the available share float, the smaller the supply & the higher the demand from the shorters to buy back the shares they borrowed, the higher the price of GME gets driven.
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Coming back to the basics here...
After having read all the above, last year in GME's December ~10 earnings report, the amount of Direct Registered Shares was ~5 million shares and this was only 3 months after GME holders started directly registering their shares. It is speculated via bot data that the directly registered shares for this quarter will be around 15 million give or take 5 million (+5 more million from the previous quarter).
Since the available GME shares free float (Excluding insiders, reports from institutions etc) is around 38 mil, then 38 mil - 20mil is 16 mil shares.
The total free float is around 62 mil shares. And 20% of 62 mil is around 12 mil. Let's round it down to 10 mil for no reason just to be nice.
Shorts are utilizing 100% of GME available shorts. Some don't report their short positions so 20% short interest on GME's total free float is being nice.
10 mil shares owed to be bought back. No more (known) lenders available to lend out more shares. If the over-estimations of how much of the float is locked are correct, then on March 9's GME earnings, we'll know that the free float will be 16 mil shares with 10mil shares short.
If you're a smart short, you'll close your shorts before that happens and some may be doing it already due to the current price peaks that are still typical of an SLD/NSCC deposit cycle, so it could be either...
The problem for the shorts is that next week, there's going to be volume hitting GME from option clearing and it's been bullish in 4/4 last cycles technically. There's no reason it wouldn't be bullish for this cycle on 22/2/22 as well.
So if the options clearing period causes GME to go up even more to it's preferred position of $180 (The battle for $180), and with only 19 days left to earnings & the announcement on how much of the float is locked by Direct Registration of shares... then, yeah, shorts are actually in a bit of a pickle regardless of whether the reported DRS/Direct Registration shares are less or a lot less than expected as with 100% short utilization, ~10mil shares short is the best that they could do & a drop of price to $100 with us slowly inching upwards thanks to the 90 day quarterly option clearing cycles & bullish orders stemming from those.
The shorts are going to struggle with GME like they struggled with Tesla, but more. I believe this is an unwinnable battle for them in the long term & that GME can only provide them short term gains. As to the shorts that will never understand the above who will keep attempting to short GME at any price as it always slowly inches up, they will keep getting burned & will continue to contribute to GME's slow but definite price rise. GME is an eternal bear trap.
The only way forward for the shorts (funny pun for those who'll get it), are Synthetic Forwards & other Synthetic option strats that mimic short positions & Variance Swaps & the replicating portfolios made up by options (and the ports are dynamically hedged by adding more options) to make money off volatility rather than movements of the underlying but with effects on the underlying.
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My own stuff
Since today on market open at around $124.9 i managed to go all in with plenty of NTM, ITM and Deep ITM calls for March 04. All my calls are below $130 strikes expiring in March. I picked those instead of 25 Feb as IV increases on Feb 25's do not give ANY significant return especially with the NTM strikes i like. With the March expiring options, IV increases can actually provide another +10% on top of intrinsic option gains if opened & closed at the correct timing which is what i plan to do.
I have several super deep ITM calls that i plan to exercise. I pity the person who sold those who's about to get assigned on those. I plan to sell my NTM's at the peak around the 25'th, maybe earlier or later as the true range of the cycle is 22 Feb - 04 March and this is the timeframe where options still get cleared & orders from them still hit the market with the FIFO/First In First Out order. No one knows what's gone in first and what's coming out last. A clever man would've made sure that his FIFO orders would cause an initial price drop during the netting at the NSCC/OCC to screw retail GME holders & short put sellers. This did not happen in November in my opinion and as i said somewhere above, shorting commenced exactly on the day of November's cycle and not one day too early, but it was moot and just gave people a chance to buy calls at the bottom & load up on more shares cheap, myself included.
I have personal PT of $242 for this run. In reality we might not pass $150. That's why i'm fully hedged but in the majority bullish for this run. $242 is my PT based on what the current SLD week is looking like. It really is looking like last year's MAY run where GME ran by +85%. Equally we could simply repeat last November's run and only touch +25% on the underlying stock price.
In May we went up 90% ish, in August we went up 50% ish and in Nov 25%. One would expect 12% for the next run. I expect +90% due to what this SLD week is looking like and again, it looks like last year's May run (See chart above). As VIX slowly drops towards and below 20 & the GME borrow rate plummets, we should see the runup occur and the timing of it looks like it'll be impeccably on exactly 22/2/22 in my opinion based on option flow, CFTC swaps & 1 year of too many hours of daily GME & market research.
I own nothing else other than GME for now. Let's see what the future brings. None of this is financial advice. Just because i've yolod my entire life's worth on this run, doesn't mean you should too.
Good luck whether you're long or short. I really hope for your sake that you're only short puts for the next 2 weeks and not short calls until March 02 where the option clearing cycle ends. Please have realistic price targets for this run. Better safe than sorry.
Again one more time, not financial advice, and i'm literally not a financial advisor. This is my research & i trade based on it, but it's aggressive and maybe not suitable for others.