When Wall Streeters take advantage of the system, it’s called capitalism, but when outsiders do it, it’s called manipulation.
This is where the narrative has been over the past 48 hours.
At the heart of the debate is a question about what’s right and wrong: how can there be more shares are sold short than are outstanding. Over the past two days, I’ve seen variations of the following question: “How is this even possible, and how is this legal?”
Obviously, I’m not a lawyer, and I didn’t even fully understand the mechanics of how this part of the business worked until yesterday. Thankfully I follow smart people on Twitter who can explain it.
The TL:DR is that the way the number is calculated is a bit misleading. Click on the link below to see how Jesse Livermore breaks it down.
WSBers seem to think b/c the short interest is > 100%, no longs will have to hold bag here. If everyone cooperates in the squeeze, everyone will eventually be able to sell–specifically, to the covering shorts. But as others have pointed out, that's based on big misconception…
— Jesse Livermore (@Jesse_Livermore) January 27, 2021
Here’s Dave Nadig
It’s also cascading. I borrow your shares, sell them to bob. Bob reloans those shares to Alice, who sells to Tom. You, bob and Tom are long. Alice and I are short. The ‘shares short’ gets (imperfectly) reported. It counts both alice and I. Only you get called “float”
— Dave Nadig (@DaveNadig) January 27, 2021
Am still amazed that traders, both amateur and professional, do not comprehend that every share sold short creates an additional share “long” in the float. And that shares can be lent multiple times if the buyers hold them in margin accounts. Back Office 101.
— Diogenes (@WallStCynic) January 27, 2021
And here’s James Seyffart
— James Seyffart (@JSeyff) January 27, 2021
I understand why the question comes up, “how can there be more shares sold short than total shares outstanding?”
I hope this primer from my smart friends on the internet helps answer the question.
Today is going to be another crazy day, be careful out there.