If you have been watching the news you may have come across news about stock GameStop. You can search and read more in google if you type “GameStop Short Squeeze”.
It all started in a post in reddit.com. Under WallStreetBets subject some people shared large amount of shorting on GameStop Stocks.
Short: Borrowing shares of a stock from other, selling it in the market, expecting it to go lower price, then buy it in the market from lower price. Hand in the shares to original owner then put extra money in your pocket. Here is an example:
- Let’s say you borrow 100 shares of Stock A from $10 per share.
- You sell it, you have $1000.
- Price of share goes down to $4
- You buy 100 shares for $400. (Note you have still $600 in your pocket 1000-400 = 600)
- You return 100 shares to original owner of the stocks.
- Conguragulations! You earned $600 from nothing!
But what happens if stocks goes up? It becomes very interesting. You have to buy (cover your short) from higher price than you have sold. And you end up loss. If the price goes up very fast and you can’t cover your shorts you may end up with unlimited loss, even a loss larger from your initial investment.
That’s exactly what happened in GameStop Stocks. Reddit users realized stock is massively shorted, and there is not much left for stock to go down. They organized and buy stocks. Price of stock started to rising fast. Short positions started covering (buying back from market). This again raised price even higher. Many hedge funds which were in short position bankrupted. And reddit users who bought this stock created millions of dollars from initial investments of thousands dollars.
Short squuezing is what happened in this era. Stock price went from $4 to $450, and expected to up to $1000.
Reddit group attacked to AMC stocks in same manner, again many hedge funds ended up in bankruptcy.
Now same reddit group has a bet on Silver price.
- Silver exist only 8 times of Gold in nature. So it is very rare on earth. In the past Silver price was about 1 15th of Gold. Now it is 1 70th of Gold. So it is already very cheap ($27 per ounce). It has to go up.
- Silver can be traded both in physical and on paper (digital). Digital trade is 250 times of the physical trade. It is very high. Banks and Hedge funds trading silver on paper should have 1/250 of their size in real silver.
- Silver is massively shorted by hedge funds.
Using these facts, Reddit WallStreetBets group has a plan. If they buy real silver, they can lead to an rise in price. Actually it is already happening, price went from $21 to $27 in a week! When you buy physical silver in large amounts, price goes up, then funds in short position has to cover, so they buy physical silver from market. So price rises again. This is one side of the game.
Other side of the game includes buying call options. Reddit group suggets buying call options. When you buy these options, seller of the option has to buy physical silver from market to cover his potential loses in the future. Guess what this action leads to a rise in silver price. Also when the price rises about call option contract value, writer (seller) of the options goes bankrupt and buyer earns huge sum of money. This is called Gamma Squeeze.
Here are some of the links you may use for investing in silver: