[Ads-l] gamma squeeze

Baker, John JBAKER at STRADLEY.COM
Mon Feb 1 17:44:45 EST 2021


Well, the OED’s definition of to sell short, “to effect a sale of stock or goods which the seller does not at the time possess,” is correct if you understand “possess” to mean “own.”  As Dan points out, usually a stock is borrowed and delivered to the buyer; while this is not definitionally required for a short sale, it is a legal requirement of American securities trading.  If you understand “possess” to mean to hold without necessarily having beneficial ownership, then the definition is incorrect.

It is the particular shares sold short that the seller must not own.  The short seller may in fact own fungible shares of the security and class that are sold short, but nevertheless deliver borrowed shares rather than those that the seller owns.  This is known as a short sale against the box.  There are various reasons why a short seller might do this.  For example, a broker that wishes to make a market in the security may need to own shares in order to be a market maker, but does not actually have any interest in ownership of the stock.  A short sale against the box will allow it to have shares for trading purposes while having a net neutral position.  Most commonly, however, this is done for tax reasons.

The requirement to borrow and deliver shares that are sold short explains how GameStop could have aggregate short interest equal to 140% of the public float.  The buyer of borrowed shares receives shares exactly like any other outstanding shares and has no idea whether the seller delivered borrowed shares or not.  Accordingly, there is no problem with the buyer lending these shares out to short sellers, so the same shares can be sold short multiple times.


John Baker



From: American Dialect Society <ADS-L at LISTSERV.UGA.EDU> On Behalf Of Dan Goncharoff
Sent: Monday, February 1, 2021 4:21 PM
To: ADS-L at LISTSERV.UGA.EDU
Subject: Re: gamma squeeze

Just thought I would point out that the definition of selling short in the
OED is not strictly correct -- most of the time you borrow the stock to
deliver.

Also, if delta is not in the OED, it probably should be, since it has
become a common term in talking about anything with an option component,
and lots of things do. Perhaps gamma has arrived also, but I think it's too
early. Most people who talk about gamma don't really understand it.



On Mon, Feb 1, 2021, 2:50 PM Baker, John <JBAKER at stradley.com<mailto:JBAKER at stradley.com>> wrote:

> “Short squeeze” really should be in the OED. In this context, “short”
> derives from the verb to sell short, which the OED defines as “to effect a
> sale of stock or goods which the seller does not at the time possess, but
> hopes to buy at a lower price before the time fixed for delivery,” and the
> related adjective short, defined as “Having sold as yet unacquired stock
> which the seller hopes can be bought at a lower price before the time fixed
> for delivery.” (Incidentally, there is an error in the OED, where short
> A.18.g, the adjective, should cross-reference short C.11, the verb, but
> instead cross-references unrelated short A.11.)
>
> A short squeeze is financial difficulty experienced by a short seller when
> the price of the security or commodity sold short then rises, so the short
> seller then must pay more to purchase the security or commodity and cover
> the short position. The price increase also increases the amount of
> collateral that the short seller must post. The short seller’s purchases
> will themselves tend to cause the price of the security or commodity to
> rise, so when there are many short sellers (as typically is the case in a
> large market), they can put pressure on each other. While the current
> short squeeze is in common stock of GameStop Corp., early references tend
> to be to trades in commodities. Here is an example from the St. Louis
> Post-Dispatch (July 21, 1882) (ProQuest): “The “Short” Squeeze. D.P.
> Rowland & Co. Strike a Snag, But Recover Again” (title). The text of the
> article does not use the term “short squeeze,” but does have this
> description of events:
>
> “The late heavy advances in grain found this firm on the short side,
> principally in corn. They met all calls for margin up to yesterday, when
> with further and heavier demands Mr. Rowland determined to suspend, as he
> found he could not get in the money due his firm and consequently would be
> unable to meet all the calls for margin made upon them.”
>
> I had not come across the term “gamma squeeze” until a few days ago, and
> it seems to be a fairly new term. It’s a specialized term and probably
> should not be in general purpose dictionaries like the OED. It derives
> from “short squeeze” and from “gamma,” which is a measure of the rate of
> change in the ratio of the value of an option (or other derivative) to the
> underlying security or other asset. (Gamma is also not in the OED, and
> maybe also doesn’t belong there.) A gamma squeeze is a short squeeze
> caused by trades in options, rather than (or, in reality, in addition to)
> trades in the security or commodity in question. Here’s the earliest gamma
> squeeze I immediately see, from the Los Angeles Times (Sept. 8, 2020)
> (ProQuest):
>
> “”The sheer scale of call buyers both institutional and retail cause a
> ‘gamma’ squeeze situation for dealers, exacerbating moves in tech,” she
> [sc. RBC Capital Markets strategist Amy Wu Silverman] wrote in a report
> Monday. (“Gamma” is a term for option price drift that dealers often seek
> to offset by buying or selling the underlying stock.)”
>
>
> John Baker
>
>
> From: American Dialect Society <ADS-L at LISTSERV.UGA.EDU<mailto:ADS-L at LISTSERV.UGA.EDU>> On Behalf Of
> ADSGarson O'Toole
> Sent: Sunday, January 31, 2021 9:18 PM
> To: ADS-L at LISTSERV.UGA.EDU<mailto:ADS-L at LISTSERV.UGA.EDU>
> Subject: gamma squeeze
>
> External Email - Think Before You Click
>
>
> "short squeeze" is the old lameness
> "gamma squeeze" is the new hotness
> "pump and dump" is the perennial; soon to regain popularity, I expect
>
> OED does have an entry for the stock market sense of "pump and dump".
> It does not have entries for "short squeeze" or "gamma squeeze". This
> is specialized vocabulary, but it is becoming more widely known.
>
> An entry for "gamma squeeze" was created for Wikipedia on January 23,
> 2021‎.
> https://en.wikipedia.org/wiki/Gamma_squeeze<https://en.wikipedia.org/wiki/Gamma_squeeze><
> https://en.wikipedia.org/wiki/Gamma_squeeze<https://en.wikipedia.org/wiki/Gamma_squeeze>>
>
> Website: The Motley Fool
> Article: What Is a Gamma Squeeze?
> Author: Chuck Saletta (TMFBigFrog)
> Timestamp: Jan 28, 2021 at 12:00PM
> https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze/<https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze><
> https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze<https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze>>
>
> The OED first cite for "pump and dump" is excellent, i.e., I could not
> antedate it.
>
> pump
> PHRASES P1.
>
> [Begin excerpt]
> pump and dump n. Stock Market (originally U.S.) a fraudulent scheme
> in which a person or company promotes a low-value stock in order to
> profit by selling shares at inflated prices; chiefly attributive.
>
> 1988 Wall St. Jrnl. 2 Feb. 1/6 For most promoters, the preferred
> scam is ‘pump and dump’—pump up the per-share price with hot air and
> hype, then dump the stock on duped investors for immense profits.
> [End excerpt]
>
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