Still think TITNC3: Return of the Iceberg was peak

slcsez2000 · Mar 5, 2021

ThunderCookies said: ↑

I’m in heavy on shares for Carnival and Norwegian. Both are down almost 30% from yesterday. Could be a good play for a call
Click to expand...

that’s what I was thinking

slcsez2000 · Mar 5, 2021

not_nick · Mar 5, 2021

Chrisf06 said: ↑

@TreeFortRichard missed a huge drop on SANP and decided to just hold it since it went down so much.... today has me inching back to even, haha

Click to expand...

I like it still

TreeFortRichard · Mar 5, 2021

So this is absolutely nuts...
Get home from work..stopped off to buy some Sea scallops and Fish and chips for dinner..
Get home and my end of day $$ is -$384....
I was down $12K at one point today

WTF?
Glad I'm not prone to bouts of self termination...

Oh and $OCGN popping after their nasal vaccine is ready to roll (it's automatically approved for children if it gets the OK from the FDA)

TreeFortRichard · Mar 5, 2021

Here's some $GME pR0n @kairo
https://www.forbes.com/sites/george...o-with-the-madness-of-crowds/?sh=59b8caa725d0
Basically a major publication, Forbes, validating the buy and hold..

forbes.com
“GameStop/Gamestonk” Has Nothing To Do With The Madness Of Crowds
George Calhoun
14-18 minutes

A Gamestop branch seen in Munich, Germany on March 4 2021. (Photo by Alexander Pohl/NurPhoto via ... [+] Getty Images)

NurPhoto via Getty Images

The GameStop Bubble, Updated

Chart by author
The GameStop (GME) eruption has been portrayed as the product of wildly irrational investor behavior – a “frenzy,” a “speculative orgy” (Charlie Munger’s phrase), a “game played by losers who don’t have any idea what they’re doing” – a classic case of the Madness of Crowds.

This view is incorrect. Observers are misled by the fact that the market is obviously not “rational” in the finance-theoretic sense of the term. Share prices no longer reflect the underlying asset-value. GameStop’s mediocre, money-losing business is certainly not 4000% more valuable than it was at this time last year.

But this does not mean that the decisions of the GME traders are irrational.

The GME event is in fact the result of a process that is hyper-rational. It is based on highly accurate calculations of specific outcomes which possess a much higher degree of certainty than is the case for normal investment decisions. There is no “madness of crowds” here. It is a premeditated, predatory take-down of a cornered and defenseless counterparty.

Here’s how it unfolded.

The Standard Assumptions That Don’t Apply
The naive view of the stock market is based on two assumptions that seem self-evident.

Investors buy or sell particular stocks based on the price – and whether they think the share price accurately reflects the underlying value of the business.

The market is a “free” market. Investment decisions are fully discretionary.

This is how we are taught, practically from childhood, to think about the stock market: as a vast convenience store full of investment offerings, all tagged with their respective prices. We are free to wander up and down the aisles, so to speak, to study the merchandise, and decide which offerings are most attractive. We make our own decisions. No transaction is forced upon us.

There are many situations where one or both of these assumptions are invalid.

1. Price-Insensitive Transactions
Many stock transactions are in fact executed without regard to the share price – and are thus also disconnected from any consideration of the company’s fundamental value. Passive index-tracking investment funds do not transmit information about the price/value relationships of the individual components. Michael Burry, the star investor of “Big Short” fame, told Bloomberg News:

“Passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies — these do not require the security-level analysis that is required for true price discovery.”

When we buy a share of an index-tracking ETF like the SPDR, we are buying all 500 companies in the index, regardless whether they are overpriced or underpriced. When, a month or a year later, we sell that share of SPDR, we are effectively selling the shares of all 500 companies at once. In the interim, some of those companies have surely done better than others, and different components now are overpriced or underpriced. These shifts have no bearing on the decision-to-sell. We are selling them all, indiscriminately, simply because of they are in the index. If a company is added to the index, the ETF managers have to buy it – regardless of price. If it is dropped, they must sell it. Regardless of price. (I have described this process in a previous column, with respect to Tesla’s run-up since November of last year.)

There are several important sources of price-insensitive (and thus value-insensitive) buying and selling, including

Corporate share buybacks – notoriously insensitive to value in many cases

High-frequency trading and market making – focused on small eddies in the order flow that create opportunities to exploit the bid-ask spread

Many forms of algorithmic and quantitative trading that exploit small, temporary deviations from prevailing patterns, unrelated to long-term company fundamentals

Even basic momentum trading is quasi-insensitive to the price/value relationship – trend-followers buy a company’s shares because they believe the trend will continue, not because of their assessment of the price of the shares relative to the value of the business

JP Morgan has estimated that only 10% of the trading volume in the market today is based on the old-fashioned research-based discretionary investing. The other 90% of the trades are fully or partially price-insensitive. This dilutes the value-related information which the share price supposedly contains – a precondition for a second and more brutal type of market dislocation.

2. Forced Trades
The idea that all trades are entered into voluntarily — which would seem obviously true – is in fact false. There are many situations in which one side of the trade is undertaken under duress, involuntarily and without flexibility of execution. These situations can be exploited by traders on the other side of the transaction who take advantage of the fact that their counterparties have little or no room to maneuver.

A margin call is one example. Investors who have borrowed money to buy shares find themselves forced to sell – at exactly the wrong moment, and at a loss – if their share price falls too far below its collateral value.

Forced selling is familiar. But is there such a thing as forced buying?

Yes. There are several situations in which a market participant has very little option but to buy shares, and often at a highly disadvantageous price. Cornering these forced buyers and feasting off their distress is another one of the ancient arts of the marketplace.

This is the key to understanding the GME event.

A 21st Century Hi-Tech Corner
Great “corners” of the past – in gold, silver, copper, onions, chocolate – usually failed.

What happened with GME is that the predators (Reddit) figured out how to design a novel and extremely effective corner. They did it by combining, possibly for the first time, two different techniques.

a Short Squeeze, which is ancient, reasonably well-understood, and quite hard to execute

a recent innovation, called a Gamma Squeeze, which added the leverage the Reddit swarm needed to power the corner and flip it to their advantage

The Short Squeeze
Short sellers sell borrowed shares and hold the cash. They hope for a decline in price, so they can buy back those shares for less than the money they received from the short sale. If the share price rises, their position loses value – because the shares would have to be bought back at a higher price, inflicting a loss on the short seller. There will be a margin call to post more collateral. If the shares rise too much, the short seller is forced to buy back (“cover the short”) at a loss. This forced buying puts further upward pressure on the price – which squeezes other short sellers still holding out. When they cover, at an even greater loss, their buying drives the price still higher. The squeeze can send the price soaring.

This scenario attracts new buyers, the “Longs.” They buy shares that they will later sell to the desperate shorts at the top of the squeeze.

The traditional short squeeze is a slugfest. The Shorts do have a built-in advantage, however. As they defend their position – by selling more – they gain cash. The Longs have to use cash as the battle proceeds.

The Porsche/VW Case
One of the great short squeezes in recent history involved an attempt by Porsche to take over Volkswagen. Despite the fact that VW is over 10 times larger than Porsche (by sales), the smaller company was able to engineer the squeeze, and acquire a majority voting interest in VW equity. The short sellers were savaged.

Volkswagen Closing Share Prices Feb 2008-March 2009

Chart by author
Intraday trading at the height of the squeeze — Oct 27-29 – was even more extreme, with swings of nearly 100% in a few minutes.

Volkswagen Intraday Prices During the Squeeze (Oct 2008)

Thomas Steiner, Wikipedia Commons
The case is extraordinary because of the target’s massive size. As the squeeze played out, VW became (briefly) the world’s most valuable company.

The Porsche strategists added a new wrinkle, secretly acquiring options on top of the shares they owned.

“Porsche revealed that it owned 42.6 percent of the stock, and had acquired options for another 31.5 percent – the shorts scrambled to cover, and the price leaped…”

“On paper, Porsche made … some €6-12 billion. To put those numbers in perspective, Porsche’s revenue for the whole year of 2006 was a bit over €7 billion.”

Porsche’s CEO was charged with market manipulation (later acquitted). The leading short-seller committed suicide.

It was a heavy lift to engineer this event. A traditional short squeeze requires a huge amount of ammunition ($$) on the buy-side to corner the short-sellers and force them to cover. Going dollar-for-dollar against the shorts is very hard. Porsche’s move took three years of careful maneuvering. Which is why successful squeezes are so rare. Until now.

The GME Gamma Squeeze
The game-changing maneuver is called, obscurely, a Gamma Squeeze. It is a recent invention; if you google the term, there are very few articles older than January or February of 2021. It is clever and powerful. It also uses options to intensify the pressure on the short-sellers, but in a different way.

Here’s a simple example. It starts with buying a Tesla call option. (The numbers are real, as of February 26, 2021.)

On February 26, Tesla closed at a price of about $675 a share

2 days earlier Tesla had closed at $742; 2 weeks earlier it was at $816 – so you think it might go up again

You buy an option to purchase a share of Tesla for $725. The option expires in 2 weeks, on March 12

The option costs $15

If Tesla’s price rises above $740 ($725 plus the $15) on or before March 12, you make money

If the option expires on March 12 and the stock is still below $740, you lose $15

If Tesla’s share price rises back to $816, the option is worth $76. The return on your $15 investment is over 500%. (In contrast, if you had bought a share of Tesla at $675 and sold it at $816, your return would be just 21%.)

The “risk/return” relationship is asymmetrical. The downside is limited. The upside is unlimited.

Option Economics – a Tesla Call

Chart by author
The Gamma Squeeze
But who sells you the call option? What does his risk contour look like?

Your counterparty is almost certainly a market professional with experience in pricing and selling options. The structure of his risk is the inverse of the yours. His upside is limited to the value of the premium ($15 here). His downside is unlimited. If he writes a naked call option, and the price rises, he is on the hook to deliver at the strike price. He will have to buy in the open market – at $816, he would lose a net $76.

Profit/Loss Calculation for Tesla Call Option

Chart by author
Consider the difference this makes in the psychology of the Buyer and the Seller of the option.

The Buyer can view this as a simple wager. He may lose (at most) the $15, but he could win many times that amount.

The Seller can only make $15, and stands to lose heavily if the stock moves up. In effect, he has assumed the same risk as a short seller. Given recent history of Tesla (over $800 just a few days earlier), this is not a risk that a professional would accept. He has to hedge it somehow.

The risk can be hedged in many ways, most of them too complicated to explain here. The simplest is for the seller to buy a share of Tesla at $675 when he writes the option. This is a covered call. His risk of a big up-move is eliminated. (He now has a risk of a downside move, but we can ignore this for now.)

Naked Call vs Covered Call

Chart by author
This transaction is not quite forced – the seller could take the risk and go naked. He could find other ways to hand off the risk by buying or selling other sorts of options. But in most cases writing a call option will trigger someone, somewhere, to purchase of a share of the underlying stock, as a hedge.

The key to the Gamma Squeeze is this: Call options are a much cheaper way to apply the pressure on the shorts. In this example, the option costs just 2% of the cost of buying a full share of Tesla. This tilts the game dramatically in favor of the orchestrators of the squeeze. With just 2¢ of at-risk investment, they can force the shorts to take on $1.00 of new risk. Even with the shorts’ liquidity advantage, this is now a different battle. It opens the game up to the “retail” swarms that mobilized around GME on Reddit. They targeted the huge exposed short positions in GameStop (well over 100% of the company’s outstanding float). Where before it required major financial muscle to even attempt a corner or a short squeeze, now huge numbers of small traders can join the game. The tipping point is quickly overrun. The shorts were forced to cover.

The strategy is hyper-rational because the degree of certainty is very high. Betting on the share price movements based on the ordinary ebb and flow of information in the market is much less certain than betting that buyers who are forced to buy will in fact buy. And if the gamma squeezing trader can position so that the forced buyers have to buy from him… well that is money in the bank.

GameStop is the first prominent example of this novel tactic. The market’s understanding of this phenomenon is still incomplete (which is why so many professionals were savaged). It is not clear how much leverage the Gamma Squeeze adds, quantitatively. Or how repeatable it is. Or how stable – could it break down just as easily with a counter-surge of put options? (Which would exploit the new downside risk implicit in the covered call.) Frankly, I don’t know. But it seems that attempts to execute this technique are growing. The daily volume of options trading in the U.S. has doubled in the last two years. The strongest increase has come from retail traders.

This new squeeze technique constitutes a dramatic example of a more general phenomenon: the structural disconnection of investment decisions from traditional price and value concepts, which can create situations involving coercive asymmetry in certain trading relationships. When buying or selling can be forced, it can alter investor psychology and lead to market dislocations that may be severe.

George Calhoun's new book is Price & Value: A Guide to Equity Market Valuation Metrics (Springer 2020). Prof. Calhoun can be contacted at gcalhoun@stevens.edu or Twitter @GeoCalhoun520
Click to expand...

TreeFortRichard · Mar 5, 2021

This crash really nuked a lot of my "run up to earnings and sell" call plays...

toysrgood · Mar 5, 2021

Down about 10% on my brand new portfolio.

I chose a terrible time to buy in.

theesotericone · Mar 5, 2021

TreeFortRichard said: ↑

My account is down $25K over 3 days and I've basically sold nothing...
Click to expand...

Only 25K? Rookie. lol

TreeFortRichard · Mar 5, 2021

theesotericone said: ↑

Only 25K? Rookie. lol
Click to expand...

SOrry FoR bRaGginG
Much better by close today...But yea...You must have taken a solid Louisville slugger to the nads on $RIOT
I only had like 5 calls

theesotericone · Mar 5, 2021

TreeFortRichard said: ↑

SOrry FoR bRaGginG
Much better by close today...But yea...You must have taken a solid Louisville slugger to the nads on $RIOT
I only had like 5 calls
Click to expand...

I made a lot on RIOT prior to this trade. I gave that all back to the market this week. I'm still up for the year overall but it was a damn blood bath for me this week. ARK lost more money for me then my RIOT trade did. Figure that one out. lol

enforcertaco91 · Mar 6, 2021

08pretaco said: ↑

PLUUF is a cheaper way to get into LIACF
Click to expand...

Won't it just convert to same amount dollar wise once they merge ?

enforcertaco91 · Mar 6, 2021

kairo[OP] said: ↑

Gf bought another $7k worth of GME on the dip. Apparently she likes the stock
Click to expand...

Awesome .. really think this could go full bonanza !

TreeFortRichard · Mar 6, 2021

OK I’ve got to do some more digging into it. It’s kind of strange that it’s not popping up under the News feature for the stock under any of my trading platforms but $ZOM filed two SEC filings Friday for stock offerings of a shit load of shares. I’ve got to break it down but it looks like a huge dilution. This is on the heels of the offering they did in early February.

98tacoma27 · Mar 6, 2021

Little synopsis on the state of GME shares
https://youtu.be/mY_sk907MYg

ThunderCookies · Mar 6, 2021

TreeFortRichard said: ↑

OK I’ve got to do some more digging into it. It’s kind of strange that it’s not popping up under the News feature for the stock under any of my trading platforms but $ZOM filed two SEC filings Friday for stock offerings of a shit load of shares. I’ve got to break it down but it looks like a huge dilution. This is on the heels of the offering they did in early February.
Click to expand...

Would explain the drastic drop in price the last 2 days

Iwilltaco · Mar 6, 2021

TreeFortRichard said: ↑

OK I’ve got to do some more digging into it. It’s kind of strange that it’s not popping up under the News feature for the stock under any of my trading platforms but $ZOM filed two SEC filings Friday for stock offerings of a shit load of shares. I’ve got to break it down but it looks like a huge dilution. This is on the heels of the offering they did in early February.
Click to expand...

This is in addition to the announcement of 91 million shares they did a month ago? Or part of that 91 million? I can’t find anything

98tacoma27 · Mar 6, 2021

Iwilltaco said: ↑

This is in addition to the announcement of 91 million shares they did a month ago? Or part of that 91 million? I can’t find anything
Click to expand...

I can't find anything either

TreeFortRichard · Mar 6, 2021

https://investors.zomedica.com/sec-filings

You have to go here

to find
filing yesterday that basically says they’re going to sell shares to compensate employees. https://investors.zomedica.com/sec-filings/sec-filing/s-8/0001171843-21-001568

And the filing from the day before describing an offering of shares that is different from the previous offering
https://investors.zomedica.com/sec-filings/sec-filing/8-k/0001171843-21-001544

08pretaco · Mar 6, 2021

enforcertaco91 said: ↑

Won't it just convert to same amount dollar wise once they merge ?
Click to expand...

If I understood the details provided, share transfer was based off closing vals feb 5th iirc.

For every 100 shares of PLUFF, you get 29 share if LIACF.

This is my understanding and interpretation of the buyout/ merger details.

Rustytaco71 · Mar 6, 2021

Stimulus bill just got passed, wonder what effect that’ll have on the market these next few weeks!

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