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I am a newbie investor and the GME situation is very interesting for me. I have read many articles about it and could not find an answer to a simple question:

What happens if investors simply hold GME stock for a very long time?

Finviz indicates a Short Float = 121.98% for GME, so the shorting did not reduce significantly over the past days.

I understand that many platforms do not allow buying GME stock (or drastically limit the amount), but this does not prevent the investors to simply hold the stock.

This answer explains the big amounts the shorters must pay in interest if they keep the shorts opened, so I assume that the hedge funds cannot hold forever.

I am puzzled by the fact that no one seems to speak about a possible way of solving this. Is creating stock by the company a solution for this? Or maybe the insiders selling the stocks to either help the company or get rich will reduce the price and allow the hedge funds to reduce the short positions they have?

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  • You mention "solving" the issue - what is there to solve? There's no problem at all and everything is fine. Short squeezes happen all the time - this one just made the news. It's totally commonplace that hedge funds (or just traders generally) make bets that lose. It's no big deal. (Famous trader Warren Buffet lost some FIFTY (what!) billion bucks on a few trades this year, ten or twenty times more than the hedge fund in question happened to lose on their bet. What is there to "solve" ?
    – Fattie
    Feb 1, 2021 at 13:15

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At about 40% (per year), GME's borrow rate (it fluctuates daily) is high but not crazy high. That would not prevent shorters from keeping a position open for awhile.

As explained in my answer in your link, there are two major problems that shorters face:

  1. The stock remaining borrowable so that they can keep their short position open

  2. Being able to maintain and afford the margin. This is the biggest problem when a short position is moving against you and is the reason for the massive losses incurred by the shorters when GME's price rose.

None of this has any effect on the investor who owns GME shares other than that he made a bundle he can pocket huge gains, if so inclined. It's likely that at some point, reality is going to set in and when it does, GME's price is going to collapse.

The large number of shares short doesn't help or hurt the company. Their day to day operation is unaffected by it. No one makes investment decisions based on wanting to help the the hedge funds to reduce the short positions they have. If the regulators don't step in, the market will solve the problem, eventually. Winners win and losers lose and eventually they move on to another game.

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    Irrational will eventually end but at what price for GME? $500? $1,000? Share price will drop like the speed of gravity if regulatory agencies get involved in a major way. There is no cost for buyers to keep the stock unless they bought it on margin. The heavy burden is on shorters who must add $1.30 for every dollar the short share's price drops after it reaches the 30 margin maintenance level (that's assuming that the broker hasn't imposed margin requirements stricter than Reg T).
    – Bob Baerker
    Jan 31, 2021 at 14:26
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    During the global financial crisis in 2008, the SEC banned the short selling of 800 financial stocks for about a month. Price would plummet if that happened with GME. It wouldn't do well either if a number of brokers did the same. I doubt that it happens but it could.
    – Bob Baerker
    Jan 31, 2021 at 14:29
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    but before the nature takes its course and GME price goes to wherever it belongs, its a game of chicken. Either people will sell (for profits or losses) or the hedge funds might start closing some of the short positions which will increase the price for ~2 days (short ratio = 2.34).
    – Claudiu A
    Jan 31, 2021 at 18:57
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    Something is only worth what someone is willing to pay for it - Publilius Syrus, 1st century BC. Could he have been trading LudoConsto?
    – Bob Baerker
    Feb 1, 2021 at 13:56
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    @supercat - Would the short squeeze have come close to working in the absence of a sea of suckers on Reddit who bought the stock at prices far above anything they'll be able to cash out?. Your logic is incorrect. The sea of suckers that you're referring to is a separate group from the sea of savvy buyers who bought and created the short squeeze up move of nearly $500. In the spirit of Fattie's correct description, the "C" guys buying high were just another thing that happened after the "B" guys were successful at raising the price. "B" is savvy. "C" is the sucker late to the game.
    – Bob Baerker
    Feb 5, 2021 at 19:12

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