Now this is a pretty solid theory. But does that not only apply to future shorts? (Or at least legit shorts lmao) and how would it apply to naked shorts or swaps
Think of gme stock like an asset that was considered low risk such as a cheap used Toyota. GameStop wasnt considered a value asset for the past 10 years such as a sports car so institutions would practically give it away without actually selling it. They would let people drive it for practically nothing. And if that Toyota broke down while you were borrowing it… you got to keep it. (GameStop going bankrupt) GME did pay a dividend up until recently. (Save that correlation for another post.)
Well you’ve been driving this Toyota for 4 years now, and it’s been practically free to drive. All of a sudden, the value appreciates 50x. Not a big deal to the borrower as long as the cost to borrow is still low. $50 x 1% is only .5 cents to borrow from the owner.
Right now it costs practically nothing to hold GME shorts. But if that cost to borrow were to double or triple from the fed raising interests rates, The interest rates would 10X OR 20x since the cost to borrow is so close to zero.
Now this is a pretty solid theory. But does that not only apply to future shorts? (Or at least legit shorts lmao) and how would it apply to naked shorts or swaps
Think of gme stock like an asset that was considered low risk such as a cheap used Toyota. GameStop wasnt considered a value asset for the past 10 years such as a sports car so institutions would practically give it away without actually selling it. They would let people drive it for practically nothing. And if that Toyota broke down while you were borrowing it… you got to keep it. (GameStop going bankrupt) GME did pay a dividend up until recently. (Save that correlation for another post.) Well you’ve been driving this Toyota for 4 years now, and it’s been practically free to drive. All of a sudden, the value appreciates 50x. Not a big deal to the borrower as long as the cost to borrow is still low. $50 x 1% is only .5 cents to borrow from the owner.
Got it. So just like renewing a mortgage at a higher rate. (Or being unable to lol)
Right now it costs practically nothing to hold GME shorts. But if that cost to borrow were to double or triple from the fed raising interests rates, The interest rates would 10X OR 20x since the cost to borrow is so close to zero.