Short Selling / Gamestop / iConsumer

By: Robert Grosshandler | January 28, 2021

Somebody out there is selling our stock “short”. In short <haha> that means that they’re betting against the price of our stock going up, and betting that it will go down. Something like what’s happening to Gamestop, but on a much different scale.

In short (more <haha>) that means somebody is betting against us/me, and historically, that’s been a bad long term bet. Not that it’s personal or anything. Elon Musk makes it really personal when people short Tesla.

What’s going on right now with GameStop shares is a great lesson. And the shorts (yup, they have a name) are taking it on the chin. And in the gut.

While I hope that the folks betting against us lose money on their 9,722 shares of stock, I’m also sort of happy that they’re doing it. It proves that somebody is watching us and that they think there is sufficient liquidity to cover their bet against us. But, as Gamestop is showing, that’s not always the case.

Quick Education – Sell high, buy low

Selling short means that somebody sells stock they don’t own yet (more on that later) in the hope that the price goes down. Then, if it does go down, they buy it. It’s the reverse of the traditional “buy low, sell high”. Be warned, the strategy has unlimited risk. What happens if the price goes up and you can’t buy? That’s a short squeeze (great name). That’s what is happening with GameStop shares right now. The biggest short needed a $2,000,000,000 infusion of cash to cover their probable losses.

The Math

An example: the short seller sells 10,000 shares today at $.135/share. Next week, it turns out their view of life was right, and the price goes down to $.10/share. They “close out” their position by buying the 10,000 shares. The difference from $.135 (selling price) to $.10 (buying price) is $.035/share – multiply that by the 10,000 shares and they made $350.

The Details

When you sell stock you don’t own, you need to borrow it from somebody willing to lend it to you. Which means that if you own stock and it’s in your brokerage account, you’re helping the short sellers try to earn a buck. Unless you tell your stock broker you don’t want to lend it. But if you do lend it out, hopefully, you’re earning something for lending out your shares.

Unlimited Risk

I’m all for making money, but I hesitate when there are risks I can’t control. If I buy a stock (say RWRDP, my fave), and invest $10,000, the most I could lose is $10,000. That, by the way, is called going “long” on a stock. I’m “long” RWRDP.

Not the case when selling short. Let’s say that I sell $10,000 of Gamestop stock short. To make it easy, let’s say I sold it for $10/share. Cool. That’s $100,000. But I don’t actually own any Gamestop stock (I borrowed the stock from somebody, remember?). If the price goes up (as it has just done) say to $15/share, then I need to buy $15,000 of stock (to pay back what I initially borrowed so I could sell short). I just lost $5,000.

But what happens if it goes up to$20/share or $30/share? What happens if nobody will sell it to me, even at $30/share? That’s a bad day.

Gamestop’s Bad Day

Gamestop, last time I looked, was up 1,600%. For every $1 a short seller “invested” he or she lost $1,600. That’s a lot of money. That’s why the short seller needed a $2,000,000,000 cash infusion. So far.

What do you do with this info?

This is a meant as a purely educational post. We’re working on making sure iConsumer grows organically – grows because more and more people use it to shop more and more. Shop and your ownership goes up. Shop and we become more valuable. Perhaps tell a friend along the way. When you do, you earn some money and more ownership. And perhaps buy our stock on the stock market occasionally (why make it easy for those pesky short sellers).