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Game Stop (GME) the story is getting more intersting

 So the outrage of the ordinary investors was a good story but it turns out it was mostly BS.  Some of the early investors had a strong feeling about the company and its ability to turn its story around.  These guys made big bets and were very well rewarded.

However, it seems that the real play was Gamma Hedging!  First off, short interest in GME was small once the stock hit $70.  That's important, prior to that week in late January 2020 the short interest was huge something like 180% of available stock, which means many players were doing naked shorting (which is illegal), but once the stock doubled short interest went down fast -- to around 30%  still high but nowhere near the nose bleed zone of before (it should be noted that the cost of borrowing GME stock exploded in mid-February -- making the whole thing expensive).

It seems now that it was the derivative market (puts and call on the stock) that created the frenzy.  These were the places where the extreme leverage caused some hedge funds to go under because if you've sold a put (the right to someone sell you a stock) or sold some calls you could have been in trouble as the expiry date got closer and closer (the very definition of a gamma short).  

All in all interesting because despite what the press wrote about the whole GME episode, the reality was that the play was Wall Street Vs. Wall Street (or really Wall Street Vs. Greenwich).  In other words a typical sort of squeeze!


 

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