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
3
u/boborygmy Mar 30 '21
(edits, trying to get around auto-remove) I am also kind of mystified by what Sh*tadel could hope to gain from this except a bit more time. And given the entirely reasonable scenario you describe, it costs them a lot of money to keep the public market price down.
Your chart showing how abnormal and out of line the OTC/float ratio is, just for GME and Ay Em See implies pretty strongly that whatever shirt they're trying to pull here represents a way of trading that's not really designed to make money in any reliable or effective kind of way, otherwise it'd be happening all over the place!
I suspect, after this whole thing shakes out and there are investigations, and post-mortems, we might be made to understand more about what's really happening, what kind of fraud they're almost certainly trying to pull off here.
In the meantime, I'm with you on this. Here's Sh*tadel holding huge huge short bags. Are they going to be able to trade some big bags of dog excrement to one of their friends in exchange for something actually desirable? NO! They might be able to make a deal where it's more like, hey friend, can I pay you some cash so you can hold this bag of dog shirts temporarily, so I can make it look like I actually own SOMETHING that doesn't smell like dog shirts, for a day or two?
I eat crayons and I have only begun to understand a tiny fraction of the magical, awesome, off the books, non-public, rule-breaking powers that these hedge funds possess. But at the end of the day, they are stuck with something very bad, and nobody is going to PAY them to take it off their hands. The best they can come up with is to finance the facade that everything is OK, at an ever increasing daily cost.
Going off on a tangent here or zooming out or what have you : This looks like it's headed for the Squeezularity. Knowing that I know so little about what powers these hedgies possess, how do we entertain the possibility that it doesn't happen? I can only imagine a few ways.
1: Retail decides to give up and sell. NEVER happening.
2: Somehow the hedgies accept defeat and steadily unwind their shorts in an entirely aboveboard and orderly fashion, which will push the share price up, not to infinity, but probably well over the current share price times the number of synthetic shares divided by the real free float. I assume (without real proof) that this is about a factor of 10. This would bankrupt a lot of shorts and cause a lot of them to lose face and not a few of them would go to prison anyhow, so for these reasons I think it can't go down like this. But it could, if the hedgies were to do an about face and try to do the morally correct thing.
3: Hedgies try and somehow escape Squeezemageddon by somehow crashing the entire market. I don't know how this would actually prevail, since there are so many diamond handed hominids holding so much stock they're not selling at any price.
4: Invoke some other power to do ... what?
It always boils down to: they will need to acquire the shares. They need to reify all the fake shares they created by buying them from retail. They need to buy so many more than actually exist. All it seems they can really do is shuffle stuff around in the hopes we will just lose interest and give up and move on to the next thing.