REPOST!! Billy Lowenstein ·
For all of the new baby apes. I know a lot of you have questions, and I thought it would be helpful to provide you with some overall context to understand the significance of the movement you just joined.
Here’s the cliff note version. Covid hit last March and a couple of big hedge funds concocted a plan to drive AMC into bankruptcy by “shorting” it and make a ton of money in the process.
You “short” a company when you think the value of the stock is going to go down. When the country locked down and AMC closed their doors and their revenue literally went to $0 overnight, it was a no brainer play for the hedge funds.
So they started borrowing millions and millions of shares from brokers and sold them “short” at the market price at the time, and they pocketed the cash from the sale. The idea is that the stock price will drop, you can buy them back later at a lower price, and then return the borrowed shares to the broker and keep the difference. If the company goes bankrupt, the stock goes to $0 and they don’t have to buy anything back at all and keep everything. This is what they were banking on. They’ve done this to company after company over the years, and they saw this as a sure thing as any.
Well a bunch of people on Reddit (affectionately known as “Apes”) noticed they were trying to drive AMC, GameStop and many other retail brick and mortar stores into bankruptcy, and banded together to buy up all the available shares, driving up the share price. This resulted in the mini squeeze in January. But Apes didnt sell after that. And the hedge funds didn’t cover their short positions either (I.e. buy back the millions of shares they had borrowed and sold short).
The Apes kept buying and buying, and holding and holding, and once the real shares were all bought up, the hedge funds doubled, tripled and quadrupled down on their short position and started making synthetic shares (IOUs) and selling those shares into the market trying to drive the price down. When the price dropped, instead of selling like the hedge funds wanted them to, Apes said “thank you very much for the discount” and kept buying more and holding. Nobody has sold for the past 5 months since the movement really got started in January, and more and more people are jumping in and adding more everyday.
Now because of all of the synthetic IOU shares the hedge funds have created to keep shorting AMC, us Apes likely own more way more shares than are actually supposed to exist (as much as 6x-8x by some estimates). But real or synthetic, each share the hedge funds sold short is a liability on their books that must be bought back in order to close out their position.
They literally have hundreds of millions of shares, possibly billions, to buy back, and we own them all. They have to buy them back eventually, and every day that the borrowed short shares are still on loan, the hedge funds are paying interest to the brokers they borrowed them from. Meanwhile it costs us nothing to hold.
Things started to come to a head a couple weeks ago because the interest rate on the borrowed shares was reported to be as high as 250% (1-2% is normal for your average stock), so the hedge funds are collectively paying hundreds of millions of dollars every day just to hold their position, and a lot of them are starting to miss the payments and margin calls could be coming very soon.
That’s when the fun starts. At that point, the broker forces them to buy back all of the hundreds of millions of shares they have borrowed and sold short, because the broker doesn’t want the hedge funds’ recklessness to fall onto them. And remember, the Apes own all the shares and aren’t selling. The hedge funds can only buy a share for what an Ape is willing to sell it for, and us Apes really love our shares.
Once the margin calls start, the computers just start buying back all of the shares at the best available price no matter what that price may be. They all have to be bought back. Everything must be settled. And if the cheapest price an ape is willing to sell for is 1,000, or 10,000 or 100,000, well then that’s what the hedge funds will be forced to buy the borrowed shares back for in order to close out their position.
Apes are going to hold and hold and hold driving up the price further and further to make the hedge funds bleed as much as possible until they are inevitably forced to buy back their millions of shares. They will need to buy our shares, and we set the price. And remember, it costs us nothing to hold. This movement has been building for the past 5 months, but you just heard about it yesterday. One thing Apes don’t do is set dates for the squeeze. Nobody knows when it will happen, all we know for sure is that the math says it’s inevitable as long as we hold.
AI
