a thread 1/It is not inconsistent to say “I love shorting stocks” but “hate managing a short book”. Let me explain.

2/Shorting means going to a PB like GS and borrowing stock in a co. you don’t own for the purpose of selling that stock. GS makes a lot of $ lending stock. Big liquid companies “cost to borrow” are a few bps but illiquid hard to borrow shorts can cost 50-90pct per year to borrow

3/All "hard to borrow" shorts IMO need to have a liquidity event in the thesis to make it worth the risk. Sometimes borrow can be recalled causing a squeeze and sometimes the cost of borrow can rise dramatically. And sometimes you can get a massive short squeeze.

4/For ex, in the middle of the GFC, Porsche engineered a short squeeze on Volkswagen stock using options. IN THE MIDDLE OF THE GFC WITH STOCKS DOWN 8-10 daily, VOLKSWAGEN WAS UP 30-50 a day, which is a good place pivot back to the risk of short ideas v short books.

5/Individual shorts involve individual idiosyncratic risk. Short books involve collective systemic risk.
A single stock can ruin a day, week, month, quarter or year. A short book can put you out of business.

1/ Why so much outrage on the "buying ban"?

no it's not about "the little people".

The real reason that very few folks talk about is all about the hedgies and whales looking for suckers.

2/ In every transaction, there is a seller and a buyer. so a squeeze is always associated with forced buying. for $GME, that was short-sellers (some hedgies) suffering margin calls from their short positions, and option dealers covering the exploding delta of their short calls.

3/ So to profit from a short squeeze, one builds up position before the squeeze and trim position as price skyrockets to sell to poor forced buyers. OTM calls are great, because their delta explodes as well in a squeeze.

4/ But in an entirely engineered squeeze having no fundamental basis (news etc), once the pool of forced buyer is exhausted (as the short-sellers and option dealers went bust), the price tends to collapse.

A good example is AAL on Thursday morning.

5/ so what do whales do if they still have large positions need to be closed?

They need new s̵u̵c̵k̵e̵r̵s̵ buyers to bag-hold the underlying which is worth much less than the current price.