The Shorting Game

Understanding Shorting Stocks and Market Manipulation

1. How Shorting a Stock Works

What is shorting? Shorting is betting a stock’s price will drop. You borrow shares, sell them, and buy them back cheaper to profit.

• Borrow: Borrow 100 shares of Company X at $10 each.
• Sell: Sell them for $1,000.
• Wait: Hope the price falls to $5.
• Buy back: Buy 100 shares for $500, return them.
• Profit: Keep the $500 difference (minus fees).

Risk: If the price rises (e.g., to $20), you lose $1,000 buying back shares. Losses can be unlimited.

Why? Investors short struggling companies to profit from price drops.

2. Market Manipulation by Big Players

Who? Market makers (e.g., Citadel) and hedge funds, who trade massive volumes.

How they manipulate:

• Negative rumors: Spread bad news to lower prices.
• High-frequency trading: Use fast computers to fake demand/supply.
• Dark pools: Trade privately to hide moves.
• Order flow control: Pay brokers to route trades, controlling prices.

Impact: These tactics distort prices, hurting small investors.

3. Overshorted Stocks, Naked Shorts, and Options

Overshorted: Too many shares shorted (e.g., 140% of GameStop’s float), risking a short squeeze if prices rise.

Naked shorting: Selling shares you didn’t borrow, creating “phantom” shares to lower prices. Often illegal, but loopholes exist.

Options manipulation:

• Call options: Buy contracts to purchase shares cheaply, hiding short positions.
• Gamma squeeze: Retail buying options forces market makers to buy stock, raising prices.

Why? Big players use these to suppress prices or avoid squeezes.

4. Keith Gill and GameStop (GME)

Who? Keith Gill (“Roaring Kitty”) invested $53,000 in GME, believing it was undervalued.

What he did:

• Noticed GME’s high short interest (over 100%).
• Shared analysis on Reddit/YouTube, inspiring retail investors.
• Triggered a 2021 short squeeze, pushing GME from $17 to $500.

Impact: Gill’s investment hit $48 million. Retail beat hedge funds, but brokers like Robinhood halted buying, sparking manipulation claims.

5. MMTLP: Unresolved Situation

What? MMTLP, a placeholder stock, had high short interest but was halted and delisted in December 2022.

Issue: FINRA stopped trading for a spin-off, leaving short positions unresolved and shares illiquid.

Why unresolved? Lack of transparency fuels claims of manipulation to avoid a squeeze. No clear SEC/FINRA ruling yet.

6. PLUG, GNS, EYEN vs. GME/AMC

Why less interference? Stocks like Plug Power (PLUG), Genius Group (GNS), and Eyenovia (EYEN):

• Smaller scale, less retail attention.
• Lower short interest, easier for hedge funds to exit.
• Frequent mini-squeezes (e.g., PLUG’s 30% jump in 2023).

Why GME/AMC are different:

• Huge retail ownership resists manipulation.
• High visibility (social media, movies) draws scrutiny.
• Corporate moves (e.g., GME raising $1 billion) strengthen them.

Result: Smaller stocks see less interference; GME/AMC are too big to fully control.