Board 8 > Stock Topic 37

(+) Yeah! (+)

No that's not correct. Covering is margin neutral and requires starting liquidity to do so.

Yes it reduces your margin use once you cover (which offsets the price of buying the asset, hence neutral) but actually closing a long position can't be done by tapping into more margin that isn't logical if you actually think about it. You have to start the ball rolling by selling a long asset.

Like think what happens when you open a short position

You receive the value of the stock in cash (or + margin if you want to look it that way) as though you'd sold the stock
You owe the lender the stock now.

So now you're saying you can buy the stock back without paying cash (or -margin)? Think about the implications of that.

Like if I sell 10 shares of AMC short, and then use the proceeds to gain 1 share of Apple, how then do I cover the AMC shares? Logically by selling the apple if neither's price has moved, there wouldn't be a problem. But you're saying I can just do it for free and now I just have a share of apple and the same amount of margin use I had before I shorted AMC? Obviously not.

Like I guess if your argument is short sellers are just short selling stock and sitting on the funds they get from the short sale so they can cover later sure, but I guarantee you that isn't what's actually happening. Everyone's super leveraged into everything and to unwind it they need to have starting liquidity from something. Hence why BTC tanks first since that's basically what it's supposed to be anyway digitalized cash, why not tap into it first.

No, when you open a short position you borrow money from your broker to maintain that position. If the stock goes up, you need to add more money to maintain the position. If it goes down, money gets freed up to be used for other things.

When you cover a short, you no longer need to commit assets to securing that position. Ergo, your margin usage does down and your liquidity increases. Think about what happens if you ignore a margin call - your broker liquidates the short position by covering. They try to do this before you run out of collateral that has already been committed to secure the margin loan.

Closing a position - long or short - always increases liquidity, except for the case where your broker believes that you have a pair of investments that are anti-correlated and closing one leg only increases risk. In that case, closing both legs still increases liquidity, but closing only one of them can dramatically increase risk and lower liquidity.

And no, you cannot bootstrap a margin loan by committing only the proceeds of a short sale to secure that short trade. That would allow you to initiate an arbitrarily large short position with zero actual capital. Your broker will always ask for more collateral than the proceeds of the short sale itself before initiating the short position.

Yes

I'm saying your broker liquidates the short position by covering but they don't just do it for free like you're implying unless you're just sitting on your money received from the broker as your proceeds from the short

If you're using your borrowed money from the short sale to buy another long asset, how then do you satisfy the margin call when you receive it? The broker forces you to liquidate something else or deposit money.

Like I don't think you're really getting it. Yes it reduces margin use, but generally the money in margin set aside to cover a short sale is being used in something else. So this whole "well you have the money set aside for this purpose" isn't really true. I mean it is in the sense that the broker needs it as collateral, but it isn't in the sense that you can just close short positions at will unless you're using no margin at all on long positions.

Like the broker needs you to have $XXX of long assets in your account as collateral. That can be cash, or other securities, or whatever else.

If you want to cover a short without liquidating a long position to do so and you're fully tapped on margin, you have to deposit some cash ie BTC.

Lopen posted...

Yes

I'm saying your broker liquidates the short position by covering but they don't just do it for free like you're implying unless you're just sitting on your money received from the broker as your proceeds from the short

If you're using your borrowed money from the short sale to buy another long asset, how then do you satisfy the margin call when you receive it? The broker forces you to liquidate something else or deposit money.

Like I don't think you're really getting it. Yes it reduces margin use, but generally the money in margin set aside to cover a short sale is being used in something else. So this whole "well you have the money set aside for this purpose" isn't really true. I mean it is in the sense that the broker needs it as collateral, but it isn't in the sense that you can just close short positions at will unless you're using no margin at all on long positions.

Your broker will never allow you to use it on other stuff to the extent that would put you into a margin call. You're acting like all of these funds are already at liquidity levels that would trigger margin calls, all the time. Except their brokers are somehow not going to issue a margin call until they get an order to close a position. Which makes no sense.

Lopen posted...

Like the broker needs you to have $XXX of long assets in your account as collateral. That can be cash, or other securities, or whatever else.

If you want to cover a short without liquidating a long position to do so and you're fully tapped on margin, you have to deposit some cash ie BTC.

You need less assets as collateral once you have closed the short position. Less, not more.

You need to deposit more assets if you want to open a new short position.

To add on, if they are fully leveraged, what they can't do without triggering a margin call is withdraw assets. It doesn't make a difference if they have AAPL stock or cash in the account. It does matter if they want to transfer those assets out of the account.

red sox 777 posted...

Less, not more.

I didn't say more. I said the same amount as you liquify longs to be able to liquify shorts if you need your margin use to come down. You don't just get to liquify shorts for nothing.

Listen, man, just look at my example, say my account is such that it allows me to use exactly enough to short 100 shares of AMC. By entering a short on AMC at that point, I am fronted from the broker money I can use for other assets. For sake of this example let's just say that the apple is exactly 10x AMC

So my position is

-100 AMC (this is increasing my margin use)
10 Apple (this is not, it's how my -100 AMC is being allocated)

So now how do I close AMC if I want to stop shorting it if I don't want to close Apple or any of my other long securities and my margin is maxed out? I have to put money in, ie proceeds from selling BTC. I'm not saying they're at risk of margin call but they are overleveraged to the point where they can't just close the positions at will.

Lopen posted...

I didn't say less. I said the same amount as you liquify longs to be able to liquify shorts. You don't just get to liquify shorts for nothing.

Listen, man, just look at my example, say my account is such that it allows me to use exactly enough to short 100 shares of AMC. By entering a short on AMC at that point, I am fronted from the broker money I can use for other assets. For sake of this example let's just say that the apple is exactly 10x AMC

So my position is

-100 AMC (this is increasing my margin use)
10 Apple (this is not, it's how my -100 AMC is being allocated)

So now how do I close AMC if I want to stop shorting it if I don't want to close Apple or any of my other long securities? I have to put money in, ie proceeds from selling BTC

Your account must have other assets in it to have been allowed to short 100 AMC in the first place. If there are no other assets in your account than the -100 AMC and 10 AAPL your account would have a net value of 0. Which means you would have already been in a margin call prior to this.

So, you would have needed to have X dollars (or other assets) in the account in the first place to make this trade. Once you have opened the AMC and AAPL positions, your broker will not allow you to use the same X dollars to back additional positions. Why not? Because that would put you into a margin call. You will also not be allowed to withdraw that money unless AMC or AAPL or both move in your favor.

Supposing you have managed to withdraw the money (perhaps AAPL initially moved strongly up), you can still close your AMC short without selling your AAPL. It doesn't matter to your broker whether you have AAPL or cash in your account. It reduces your broker's risk to close the AMC short. You "pay" by giving up the credit extended to you by your broker.

red sox 777 posted...

You're acting like all of these funds are already at liquidity levels that would trigger margin calls, all the time

But keep in mind the liquified BTC is basically providing the liquidity to avoid margin calls here. Which is all I was saying. No they're not perpetually at risk of a margin call-- but no they're not being conservative with their margin either. Hedge funds go bankrupt in bear markets for a reason.

Lopen posted...

But keep in mind the liquified BTC is basically providing the liquidity to avoid margin calls here. Which is all I was saying. No they're not perpetually at risk of a margin call-- but no they're not being conservative with their margin either. Hedge funds go bankrupt in bear markets for a reason.

If you mean net long hedge funds are at risk of margin calls, sure. But with the bear market we're in, net short hedge funds are unlikely to be anywhere near a margin call. So is your theory that funds that are net long the market are short BBIG?

red sox 777 posted...

Your account must have other assets in it to have been allowed to short 100 AMC in the first place. If there are no other assets in your account then the -100 AMC and 10 AAPL your account would have a net value of 0. Which means you would have already been in a margin call prior to this.

Yes

And those other assets must be closed, or apple must be closed, to actually reduce margin use. That was my whole point. You don't just get to close AMC and reduce your use of margin. It's a net zero because going short AMC is paired with going long something else, generally. If you ONLY had the AMC short to account for, then yes, you can close it at will but yeah, this isn't how the game is being played.

red sox 777 posted...

If you mean net long hedge funds are at risk of margin calls, sure. But with the bear market we're in, net short hedge funds are unlikely to be anywhere near a margin call. So is your theory that funds that are net long the market are short BBIG?

Yes, and I assume that's the case with most hedge funds and short positions actually.

There is only one fund that is short only on BBIG last I looked. There are like 70 long only and like 20 long + short.

Keep in mind this isn't about BBIG really.

This is about the market in general. I think we're seeing a lot of short covering soon, across the market. BBIG will squeeze on Tyde distribution it has nothing to do with that-- I'm talking about the market at large is probably going to rubberband hard.

Lopen posted...

Yes, and I assume that's the case with most hedge funds and short positions actually.

There is only one fund that is short only on BBIG last I looked. There are like 70 long only and like 20 long + short.

That makes more sense. But there are 70 long only funds that are short BBIG? That would make them not long-only....

Lopen posted...

Keep in mind this isn't about BBIG really.

This is about the market in general. I think we're seeing a lot of short covering soon, across the market. BBIG will squeeze on Tyde distribution it has nothing to do with that-- I'm talking about the market at large is probably going to rubberband hard.

If it's net-long funds that are getting margin called, wouldn't that mean they'll be liquidating long positions and triggering a crash?

Also, 0.75% rate hike - market seems happy.

red sox 777 posted...

If it's net-long funds that are getting margin called, wouldn't that mean they'll be liquidating long positions and triggering a crash?

Yes. That's why BTC is crashing.

red sox 777 posted...

That makes more sense. But there are 70 long only funds that are short BBIG? That would make them not long-only....

No the 70 funds are legit long on BBIG. 20 are long + shorts that include some longs on BBIG and some short on BBIG. There was one or two pure short funds that were in there but I think it got closed a few months back.

Lopen posted...

Yes. That's why BTC is crashing.

No the 70 funds are legit long on BBIG. 20 are long + shorts that include some longs on BBIG and some short on BBIG. There was one or two pure short funds that were in there but I think it got closed a few months back.

Okay, that makes sense for everything except BBIG. If the funds in BBIG are mostly long, then if they get margin called they would sell BBIG causing it to drop.

red sox 777 posted...

If the funds in BBIG are mostly long, then if they get margin called they would sell BBIG causing it to drop.

Not necessarily. Proportions are important. If one big long + short fund gets margin called and has a large short position in bbig (most of the long only have small positions) it would be net positive overall.

*Looks at futures*

Welcome back to our regularly scheduled bear market.

I really can't help but feel like this is pure market manipulation
Back in the 2020 market crash those futures made sense. Every morning you would wake up to terrible news all over the world. New records, new quarntines, more companies announcing profit warnings and so on.
But now? what the hell changed overnight? nothing. There is nothing that would make people panic sell to this extent

Nanis23 posted...

I really can't help but feel like this is pure market manipulation
Back in the 2020 market crash those futures made sense. Every morning you would wake up to terrible news all over the world. New records, new quarntines, more companies announcing profit warnings and so on.
But now? what the hell changed overnight? nothing. There is nothing that would make people panic sell to this extent

Back then the Fed had a money printer ready to go. Now they are unprinting money. That's the difference.

Also, somehow SPX is only down like 22% or something. It's still at the same level as it was at the beginning of 2021. Still higher than it was in February 2020. I wonder if we can retrace all the way to the pre-pandemic peak.

I think the market's rotation away from tech is kind of crazy. Last year all people cared about was growth and the longer the horizon the better. Now all they care about is short-term profits. Unless we're getting like a decade of stagflation that doesn't make sense to me.

I'm with Nanis. I think it's a coordinated effort between Hedge Funds and Market Makers to scare retail investors out of the market. Growth is being "rotated out of" because that's where retail is in higher concentrations not because of any fundamental change in what is worth investing in.

The market will reveal the actual prices again someday and it's basically gonna look like a pump and dump when it does so. The more money you can dump in the better at these levels.

Like since the fed meeting we've had the following price action

Slight dump right after fed meeting started
Bigger pump in the last 1.5 hours or so of market yesterday
Even bigger dump at market open

So what happened. The news was basically the same at all 3 points.

The market is a sham. But it's a sham that big money can only stay away from for so long so just keep putting money in.

I think retail investing had a bit of a peak, and there's a bit of a change in their habits. I also think many people that jumped onto insane valuation growth companies have been shaken out, and maybe rightfully so.

I agree that investment companies and hedge funds are going to make as much money as possible from retail investors.

I think once we hit peak retail (gamestop, amc) then people either got out and enjoyed their money, or they stayed in and lost their gains, or they bought Cardano and they lost everything

BBIG continues to be the safest place in the red sea.

Just wish I had more shares and less calls-- if I was pure shares I would hardly even be down at this point with all the averaging down I'd be doing.

It's so weird that this stock and this market has abused me so much that I'm excited to be up 3% and think that it could pop off to the races if it just gets a few more cents.

I mean this phenomenon of retail buying in near the top and then getting shaken out by a crash has happened literally over and over and over for 120+ years and probably a lot longer than that. There's nothing unusual or nefarious about it; it's just human psychology.

If you act ahead of the market, you make a lot of money. If you act behind the market, you lose a lot of money. And if you just hold through it all, provided your companies are good, you eventually make a lot of money as the long term direction is up.

red sox 777 posted...

There's nothing unusual or nefarious about it; it's just human psychology.

The vast majority of trading volume these days is generated by trading algorithms designed to exploit human psychology so it is nefarious exploitation of human psychology at work.

Has it always been this way? Probably so, but in a less blatant manner. Prices probably didn't generally move as much for the sake of moving back then.

Like

First of all anyone following the rate hike news knew .75 was all but set since Monday

Yet price still moves hard after announcement

Further it does the following

Pump fake down -> strong move up -> huge dump pre market (when most investors can't sell) that continues all day.

It's not human psychology it's fake movement designed to capture as many bagholders as possible.

Lopen posted...

The vast majority of trading volume these days is generated by trading algorithms designed to exploit human psychology so it is nefarious exploitation of human psychology at work.

Has it always been this way? Probably so, but in a less blatant manner. Prices probably didn't generally move as much for the sake of moving back then.

Yes, whether it's algorithms playing on human psychology or human traders playing on human psychology, the principle is the same. There's nothing nefarious about that in my view. That's literally what the market is for.

I disagree

The market isn't for randomly moving stock prices on literally nothing and hoping people sell. In theory the underlying value is grounded in reality in some way.

Further we're not getting true price discovery due to abuse of dark pools. These were not abused at this level until recently.

In any trade, both people have to believe that the thing they are receiving is more valuable. Ignoring risk aversion, liquidity issues, tax issues, etc. for a moment, in an intrinsic sense they can't both be right. So the game is to be right more than your counterparties. Well, if players in the game are acting in a way that psychology can predict, they're going to get "exploited." That's the nature of the game they're playing.

The problem is when the counterparties are ping ponging sells between themselves to artificially drive price down and buy orders are routed in such a way that they don't move the price up.

Like I'm not saying psychology has no place in trading-- I'm saying the methods they employ to do so don't.

Lopen posted...

The problem is when the counterparties are ping ponging sells between themselves to artificially drive price down and buy orders are routed in such a way that they don't move the price up.

Like I'm not saying psychology has no place in trading-- I'm saying the methods they employ to do so don't.

So what? They can make 99.9% of trades back and forth algo trades to themselves, it doesn't really affect things for other people unless they decide to buy/sell for bad psychological reasons.

None of these strategies actually have much effect on buy and hold investors.

red sox 777 posted...

None of these strategies actually have much effect on buy and hold investors.

And note I'm not saying they do. I'm saying the market price movement is a total sham right now and we can't really know how the market is reacting to anything in a realistic sense.

Like my whole issue here was you were trying to explain to Nanis how it's different-- the fact is it's actually not as different as you're claiming because all the price movement is fake right now. Like if you're trying to tell me the economy is in a worse state now that it was when we were in covid lockdown that's patently ridiculous.

What I'm saying is we agree in terms of what the winning move is but we don't agree in terms of why the price is moving to begin with.

Can you provide more stuff on what your model predicts going forward? It's kind of boring to keep hearing "manipulation" after the fact, but if you can make forward predictions then that could be really interesting and profitable for this topic.

Forward prediction is the market is going to moon on a random day based on a mostly irrelevant catalyst. I don't expect it to happen on a bullish fed meeting, but a bit before or after one so the news can pretend that was the reason for the move. Too many people are gambling on fed meetings right now so it won't actually happen for one of those. They want to pump when people aren't gambling with options.

T+35 delivery date on FTDs is the key I think, barring a way to flush out naked shorting on the spot (which is why Im on BBIG). So basically market makers can obscure price movement by failing to deliver, but after 35 days they need to either deliver or naked short it to kick the can down the road. It ends up being roughly 3 months to shake out the tricks (two T+35 cycles). June 2020 is a good example, 3 months after the covid dump a bunch of stuff ran for no reason. If you look at GME's run it started getting out of hand about 3 months after a dump from $15 to $10.

So personally I would aim for September-October calls, slightly out of the money, on whatever your favorite beaten down stock is, on the first somewhat stable day we have. (Or SPY/QQQ/VTI/whatever) I will definitely be doing some if BBIG plays out by then. I like BRK.B and BBBY personally as targets as they both have dumped hard and have share buyback programs in place to help fuel (and BBBY has a lot of short interest). IWM is also tempting because it is absurdly shorted for an index.

Also I think the bottom is about in. Random thing I expect may be the catalyst is the OPEC meeting around September/October. Next one is June 30 which might be interesting.

But those are the things I would expect to move the market. They're just under the radar enough that retail isn't really talking enough about them but mainstream enough that fake market movement can be attributed to them.

Puts on Oil probably also good with that in mind if you want to be negative. I think market recover pairs with a rotation out of oil.

Second amendment to CryptTyde s1.

Usually if there's a second amendment approval is quick. I'm thinking tomorrow or Monday. Either case run up tomorrow looking possible.

Nanis23 posted...

I really can't help but feel like this is pure market manipulation

I was gonna come here to say this as a joke

Lopen posted...

Growth is being "rotated out of" because that's where retail is in higher concentrations not because of any fundamental change in what is worth investing in.

Growth is more reliant on borrowing, higher interest rates means less borrowing, therefore growth risk goes up. At least that's my very novice understanding. There's a wave of layoffs in high growth tech right now which would seem to support this

MarkS222222222222222 posted...

Growth is more reliant on borrowing, higher interest rates means less borrowing, therefore growth risk goes up. At least that's my very novice understanding. There's a wave of layoffs in high growth tech right now which would seem to support this

I view the layoffs/hiring freezes in tech as very positive for the profitability of some of these companies and really overdue. My view of Uber is that they have a fantastically good technology that should be extremely profitable - but it has not been, which is probably because they have been paying too much on employees to continue growing. They wasted vast amounts of money on their self-driving car project that went nowhere. Well, now it's time to stop trying to grow, and start cashing in. They might have a limited time window (10-20 years until self-driving cars actually become a reality and cheaper than a human driver), so it's time to cash in.

Similarly, Coinbase has a business model that is going to be broken in the long run because the outrageously high commissions they charge (like 1.5% per leg of the trade!) will be unsustainable when they get competition. That competition is going to arrive regardless of how much they spent on growth. So they might as well stop trying to grow and rake in some obscene profits now.

There's been this belief in tech that you cannot overpay for growth potential and that's fine and all as long as you can find new investors to pay for it, but investors aren't paying for it anymore so companies are doing the rational thing in starting slowing the expenses.

So to explain further, unprofitable tech companies that lose money year after year constantly need more money to not shut down. They can get that in two ways - borrowing and issuing more shares. Well, the market crash has pretty much shut down the second option. To raise the same amount of money after your stock price has plunged 90% you need to cause 10 times as much dilution, which drives down the share price further.

I think the effect of higher interest rates on borrowing for tech companies is overblown - whether they're borrowing at 3% or 6% isn't going to make a huge difference in the long run especially if the higher interest rates don't last that long. But unprofitable companies find it hard to borrow anyway, and tend to finance operations by issuing shares. And that route has all but closed, causing real damage to companies without either the profits to finance their own operations or a large cash reserve.

Also it really doesn't matter what the initial impetus is for the crash; once it gets going it self-perpetuates because companies are actually losing the ability to get financing to pay for their operations without massive dilution, which is actually reducing the value of the shares. Like, the value AMC generated in 2021 by selling shares is probably far greater than the value of AMC's existing business. If that didn't happen, they would probably be bankrupt by now. These things are path dependent.

The why the market is crashing is important because it dictates what your timing should be for it to leave the crash and how hard it should bounce.

In the case of pure manipulation the market bounces violently and within a few months independent of news pretty much. There will be a news story that drives it's a figurehead story.
In the case of inflation, you should be trying to figure how quickly the rate hikes course correct
In the case of supply chain you should be following the war and our relations with Russia/China and perhaps how quickly we can get other sources of oil.

They're all related but they're different timings and speed of spikes, and how long the spike lasts. Like I think in the case of inflation being the main culprit your best bet is going to be to wait until 2025 LEAPS and go hard on them when they come.

In the case of market manipulation you should just try and pin down a time where manipulators over-extended (I would call this past week that time but we'll see if the market keeps going down-- I think we're going to barcode around where we are for a while) and buy calls about 3 months out.

In the case of the war/oil I don't really know what the play is. Just keep a lot in cash, follow OPEC meetings, and go super hard on investing when oil barons think they have enough money or Putin shows signs of giving up. You'll miss the exact bottom but buying close to the bottom is better than trying to time it.