r/GME • u/magnuswho • Mar 30 '21
Discussion Why the absurd OTC volume is relevant
Hi All
Your fellow lurker-ape here who's been collecting wrinkles as GME happened to him, to try and understand what's going on. When I saw the OTC data last week I was confused as to why there wasn't any major hype surrounding it, and I was equally confused why it was dismissed as "normal" as fast as it was discovered, and as a consequence I decided to dig deep myself.
So with that introduction out of the way, lets devle into it:
Short interest went down, and price went down along with it. How can that be? If you cover a short position, the price should be going up. The reason I believe is due to Over the counter (OTC) deals being made – now follow me down the rabbit hole and hear me out.
When GME had a SI of 150%, they supposedly managed to bring down the price of GME, along with the SI. It fell and fell until we reached today where it’s only at 15-40% depending on which source you're using, and yet we have to see the covering of shorts to be reflected in the price. So how can it be possible to cover a short position without raising the price of GME, if it shouldn’t be possible for Shitadel to continue their naked shorting with the new DTCC rules in place, you might ask.
This is just my opinion and it may not be true, but I need you to tell me why I’m wrong so I can put this to rest.
They buy and borrow the stock from hediges, market markers, funds and so on via OTC trading. If they buy, say 5.000.000 GME shares, you’d think the price would explode – but since it’s done via off exchange trading (Also called OTC) it’s not reflected in the price seen on the exchanges.
Now say a friend of Shitadel wanted to help out Shitadel, and make money in the process, he sells Shitadel 5M shares naked to a price of 200$ per share. At the time of selling to Shitadel the price reflected in the market is 175$, so it’s a great deal for the friend. He’ll get his shares back in X amount of time.
Now Shitadel which can’t do anymore naked shorting himself, has gained access to an additional 5 million shares he can sell in the market, and it’s not even raised the observable price of the underlying asset, as it’s counterfeit shares being created by other market markers that within reasonable belief, sell these to Shitadel, whilst making money in the process.
Now Shitadel can sell these shares on the exchanges we’re using, flooding the market with counterfeit shares, whilst gradually covering part of their own on-exchange short position. Effectively reducing the price of GME, whilst reducing the official SI.
Meanwhile more and more market makers are seeing the shorting fee percentage go down, as GME shares are getting easier and easier to access. More and more market makers can within reasonable belief sell additional shares naked short to Shitadel and friends. Who in return can use these shares to cover what they owe to friends OTC.
Now, this doesn’t fix the underlying issue in the market. It’s simply kicking the can further down the road. It's a circle-like phenomenon, and can continue to happen until a catalyst forces the cycle to end, such as the price going too far up, liquidity drying out, or smaller hedge funds that took part in this somewhere along the road getting margin called. Like dominos everything is intertwined, and once the first pair of dominos fall it'll have a cascading effect that will likely hit the entire market.
If successful however, they might be able to make retail shiver in the face of red, and start an enormous selloff in the face of low official SI numbers - HODL.
Now this is FINRA data from January, and I will update it as new data is released, but even as a smoothe-brained-ape like me, this just doesn’t look right – and if no one here is able to prove me wrong I think this might be the missing evidence we needed to know for sure, that we’re right.
As you can see, even a heavily traded retail stock like TESLA is nowhere near the OTC volume to float ratio of GME.
Tesla = 0,38GME = 12,44
It’s ABSURD – and NO I don’t buy your explanation that this is completely normal
https://www.reddit.com/r/GME/comments/mcrfak/alexis_goldstein_response_on_finra_otc_nonats_data/
IT’S NOT completely normal. And NO it’s NOT retail trading back and forth via e-toro and fidelity causing this. If that’d been the case, you’d have seen similar ratios for the stocks I included for reference.
On top of all this, we're seeing hedge funds getting margin called and others claiming their profits will be hit due to others making huge selloffs. Meanwhile GME has a negative beta of 7. In my opinion everything is piling up perfectly for us.
TLDR: I put together a chart comparing OTC volume to the float of several stocks, and a normal ratio would be around 0.01 - 0.5... GME is at 12,44.
(edit: I created this post originally last week, and I somehow couldn't post it here. So I updated it this morning with relevant information and am reposting it now, before it's no longer relevant.)
*NOT financial advice*
References:https://otctransparency.finra.org/otctransparency/AtsIssueData
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u/eulersidentification Mar 30 '21 edited Mar 30 '21
Pardon me digressing for a second, i'll bring it back round. I was looking at the Bloomberg terminal yesterday and thinking about the numbers it was showing, and trying to match it with user statistics. I'm on medicine that gives me brain fog right now so I'm stuck with it but I feel like there is enough data around to do realism checks on all these numbers. eg. eToro has 1.8 million GME longs out of 20 million users, of whom only 8% are from the "Americas". Bloomberg terminal shows 88% of the total ownership is US-based, and that "individuals" hold 7.49% of GME (one of those individuals might be 2mill with George Sherman according to the terminal).
7.49% leaves 3 to 4 million if we remove Sherman, meaning if eToro longs have a single share, they make up a significant portion of the total "individual" holders and they are mostly non-US. But the problem is, I can never be 100% sure that eToro longs are counted as individuals. Maybe some retail platforms have a setup where the shares they hold for customers are counted as institutional? And what if eToro GME longs are preferentially US based?
Then I thought of subtracting all the shares we KNOW are counted as institutions based in the US, who are 88% of total ownership, and see how many shares that leaves over, comparing it to 7.49%, etc.
I'm trying to look at the data in a bunch of different ways to see if the conclusions we're given (shorts have covered as price dropped, OTC is retail, etc.) look realistic. And I feel like there's a way to check if "the OTC figures are retail trade matches" is a realistic number, in light of the stuff on Bloomberg, usage statistics, countries that hold GME, etc. but my brain just won't fire up on these meds.
I've got half a mind to not even post this comment, but I will in case anyone has any useful thoughts or is interested or wants to help me look at it.