How come shares of GME or AMC are not available to borrow for short selling during a short squeeze?
How come shares of GME or AMC are not available to borrow for short selling during a short squeeze?
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Joe · External communityPost link
External question — Personal Finance Stack Exchange
Author: Joe
Original post: https://money.stackexchange.com/questions/135808
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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The principle of a short squeeze is that it makes it difficult to
buy
stock, so that people who want to cover their shorts have to pay a premium and make the price go higher. Conversely, that should mean that people are holding the stock and not selling it, and so it should not be difficult to find shares to borrow for short selling.
Yet my broker, which should be reasonably big (Schwab), claims that there are no shares available for AMC, GME, BB, NOK, BBBY... Even if I ask for one single share:
"Your request to enter a short sale cannot currently be processed, as there are not sufficient shares available. (DO3094)"
I can short TSLA if I want, so my account is set up properly.
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Bob Baerker · External communityPost link
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Author: Bob Baerker
Original post: https://money.stackexchange.com/a/135815
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A short squeeze does not make it more difficult to buy stock. It merely makes the cost of buying the stock more.
Just because many people are holding the stock and not selling it, that does not mean that those shares are all available for lending. Cash accounts cannot lend shares.
Under normal circumstances, stocks become non borrowable. It's not a rare occurrence. However, the GME short squeeze is not normal circumstances. Robinhood is undercapitalized and due to the events of the past week, it needed a capital infusion to continue operation, let alone survive. That's the reason that they placed restrictions on trading shares of AMC, BB, BBBY, EXPR, GME, KOSS, NAKD, and NOK. FWIW, it's a Mickey Mouse operation and it eludes me why people trade there when far more and far better service is available at major brokers, also with no commissions.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Bob Baerker Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/a/135815 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. A short squeeze does not make it more difficult to buy stock. It merely makes the cost of buying the stock more. Just because many people are holding the stock and not selling it, that does not mean that those shares are all available for lending. Cash accounts cannot lend shares. Under normal circumstances, stocks become non borrowable. It's not a rare occurrence. However, the GME short squeeze is not normal circumstances. Robinhood is undercapitalized and due to the events of the past week, it needed a capital infusion to continue operation, let alone survive. That's the reason that they placed restrictions on trading shares of AMC, BB, BBBY, EXPR, GME, KOSS, NAKD, and NOK. FWIW, it's a Mickey Mouse operation and it eludes me why people trade there when far more and far better service is available at major brokers, also with no commissions.
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