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"Short positions currently make up an impossible 140% of GameStop’s float, which is the result of a flaw in how short interest is calculated, a flaw that’s getting greatly magnified in the case of GameStop, according to Dusaniwsky."

Where is the additional 40% coming from?

Outstanding - restricted = float = max can borrow [Am I misunderstanding something here?]

Update:

So I got some validation from someone credible, I want to give special thanks to Dan Caplinger, the writer of Yes, a Stock Can Have Short Interest Over 100% -- Here's How

The following is the email conversation:

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During my research I also learnt that there are ways to prevent your long positions from being borrowed 1) you do not agree to it when signing up with the brokers 2) set up impossible GTC orders (but you should still confirm these conditions with your actual brokers)

Kaguya Ōtsutsuki
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    I have never understood how the short interest could exceed 100% because I always thought that a share could only be loaned out once. The only reason that I could come up with is that they can be loaned multiple times and that seems illogical. Regardless of what the answer is to that, thanks for the link to the article. Dusaniwsky makes an illuminating point that the synthetic longs need to be factored into the calculation. – Bob Baerker Jan 28 '21 at 04:41
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    The point is probably that the actual owners do not lend away their shares, this is done by the brokers actually storing the shares (well virtually). So every share sold short ends up somewhere and the new broker might be lending this out again, ending up in more than 100% – Manziel Jan 28 '21 at 08:12
  • The actual shares are held in street name and they are allocated to the investor who has all ownership rights since he is registered as the beneficial owner. – Bob Baerker Jan 28 '21 at 11:39
  • Not that I regard them as a completely reliable authority but the Motley Fool indicates that shares can be loaned multiple times: Yes, a Stock Can Have Short Interest Over 100% -- Here's How. – Bob Baerker Jan 28 '21 at 17:05
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    I find really interesting that they say "flawed" referring to how short interest is calculated, meaning they think the short interest denominator should include all of the shorted shares (so ShortInterest = (Shorts/(True Longs+Shorts)), which seems... not right). It's correct only insofar as it shows how many shares could, theoretically, be shorted in a single transaction right now - but otherwise it seems like a silly metric. – Joe Jan 28 '21 at 19:57
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    @BobBaerker but that idea is not really unusual at all in finance, an underpinning of modern banking is the concept of turning 1 dollar into many through fractional banking. – eps Jan 29 '21 at 04:10
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    @eps 9 - It's not a question of whether this is an accepted idea in modern banking but whether this is acceptable practice as allowed by the SEC. – Bob Baerker Jan 29 '21 at 13:33
  • I read that article and what was confusing was this line: "Chris has no way of knowing that those shares have been borrowed from Annie. To Chris, they're just like any other shares". So if Chris wants to be the "registered as the beneficial owner", as Bob put it above, he has no way of knowing that, basically Chris will buy fake shares? When the news broke out, I though borrowing shares means the "beneficial owner" sells them for a promise (that he's get back the shares) and a fee, but not that he will remain the owner, which would not be change to Chris, ie. the final buyer. – JasonXA Feb 02 '21 at 15:16

2 Answers2

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TomTom is right, for the most part, that the float does not include everything outstanding.

However, in the case of GameStop, that doesn't explain all of it. As you can see from this Morningstar article, on 12/31/2020, Gamestop's total Shares Outstanding (not the float) was 69.75m shares, but there were 71.2m shares sold short at that point (the Float at that point was much lower, 27.3m).

As this Motley Fool article explains, the same share can be sold more than once, if the "buyer" of the short-sold share then lends that share out for shorting:

As an example, take a situation involving four investors. Annie owns shares of GameStop, and Annie and her broker have an agreement that allows the broker to lend Annie's shares to short-sellers. It lends them to Bob, who subsequently sells those borrowed shares short in hopes that GameStop's share price will fall.

An investor named Chris ends up buying those borrowed shares from Bob. However, Chris has no way of knowing that those shares have been borrowed from Annie. To Chris, they're just like any other shares.

More importantly, if Chris has the same kind of agreement, then Chris's broker can lend out those shares to yet another investor. Diane, another GameStop bear, can borrow those shares and sell them short.

In this example, the same shares end up getting borrowed and sold twice. The short interest volume these transactions add to the total is twice the number of shares actually involved. You can therefore see that if this happened throughout the market, total short interest would eventually exceed the number of shares outstanding and approach 200%.

Joe
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    I mentioned this Motley Fool article in another chain. As I stated there, I wouldn't assume that the MF is a factual and reliable source all of the time. – Bob Baerker Jan 28 '21 at 20:06
  • @BobBaerker Perhaps not, but it's exactly what the OP's comment is saying is "flawed" in the short interest calculation. – Joe Jan 28 '21 at 20:28
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    I've long said here that the numbers don't make sense nor do the explanations here and on the net vary. I don't know the answer and I surmise that the correct answer will only come from a trading desk or maybe either FINRA or the SEC. – Bob Baerker Jan 28 '21 at 20:34
  • From what I can see there clearly have been points where more shorts were outstanding than total shares of any sort, which points to the Fool's article being at least generally accurate. The regulations etc. around that of course are who knows, and perhaps nobody really does know... – Joe Jan 28 '21 at 21:36
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    I'm going to take a pass on what the real stats are. Yesterday someone posted a question about Yahoo's %short calculations. They were screwy and didn't come anywhere near those at Zacks or Marketbeat which also disagreed. – Bob Baerker Jan 28 '21 at 21:44
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    This shows that naked short selling is not required to get short interest over 100% of float. – Jonah Jan 29 '21 at 17:35
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    I think the best example of this is the dollar. There's way more dollar-denominated debt than there are dollars in circulation. If viewed as a security, it's "short interest" (total debt) is over 1000% of "float" (M1) (a very rough approximation, could be way more than that) – Jonah Jan 29 '21 at 17:44
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The float is the amount of shares that are not in stable long term hands (investment funds, board members etc.) and "float" on the exchange.

As you can borrow shares from institutions that hold them long term (i.e. are not in the float) it is possible for the shorts to exceed the float.

TomTom
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    Want to be even funnier? When Porsche tried to take over they had purchase rights (thanks to options) to more than 100% of the shares they did not own. Not the float - OUTSTANDING shares. THAT was a short covering rally ;) Sadly they then did not get the credit to take over Volkswagen and VW turned around and bought Porsche. – TomTom Jan 28 '21 at 14:53
  • Does this mean it's also impossible to borrow a share more than once? – Phil Frost Jan 28 '21 at 15:17
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    Not sure about that, but again, there are plenty of stocks that are not on the exchanges and locked but can be borrowed. – TomTom Jan 28 '21 at 15:23
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    @PhilFrost See this question/answer. – Joe Jan 28 '21 at 18:45
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    Not sure this answer is entirely right. It has some rightness to it, certainly, but some details are wrong, and it's not the only answer. For example, Institutional ownership is not excluded from the float - in Gamestop's case, for example, Gamestop is 95% institutionally owned, and that's not reducing its float by that much! (Gamestop's float is 50m shares out of 65m total.) – Joe Jan 28 '21 at 18:53
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    Indeed, as this question/answer explains, it's also possible to have more shorts than shares outstanding (float or not). – Joe Jan 28 '21 at 18:55
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    I actually wonder if the "float" is a well defined term. I see very different values for float - so perhaps some places only exclude restricted and closely owned, and some also include some institutional shares? – Joe Jan 28 '21 at 19:08
  • @TomTom: That sounds like a disaster. Owning more options than shares that could exist has got to mean someone sold something they didn't own. – Joshua Jan 28 '21 at 19:13
  • @Joshua Welcome to GME 2020/2021! – Joe Jan 28 '21 at 19:16
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    @Joshua Technically no. It means someone sold a right to purchase on something they did not have - so if the call they sold is called in, they have to buy on the market. NOTHING says you must own the asset to sell an option - and in extreme cases.... BOOOOM. – TomTom Jan 28 '21 at 19:19
  • I wonder if naked shorting (which is illegal) factors into any of these calculations. – Bob Baerker Jan 28 '21 at 20:02
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    @TomTom "He who sells what isn't his'n, must either pay or go to prison." - Daniel Drew, circa 1875. (Sometimes quoted as "must settle up" or "must buy it back".) – David Schwartz Jan 28 '21 at 20:02
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    But a call is not selling what is not his - it is selling someone the right to get something from you ta a specified price. You have to get it - when called - you do NOT have to have it. I know, details are hard - that is why some people make money, some whine. But Details matter. You can sell options without having the underlying. – TomTom Jan 28 '21 at 20:30
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    @TomTom the VW/Porsche case is especially funny because VW ended up owning Porsche, but the Porsche holding company ended up owning VW. I'm not 100% sure on all the timelines involved there... – mbrig Jan 29 '21 at 18:33
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    @mbrig I know. One has to understand that P and VW had SERIUS cross ownership - 2 families starting both businesses together - and yes, the result is an AMAZING story they should tell every new investor. Things CAN go TOTALLY CRAZY at times. – TomTom Jan 29 '21 at 18:49
  • @BobBaerker: It almost certainly does. The apparent result is team WSB holds more than 100% of the total number of GME stocks issued. – Joshua Jan 31 '21 at 20:18
  • @Joshua - If you're referring to naked shorting, maybe yes, maybe not. A number of posters have indicated that a share can be loaned for shorting multiple times. Every time it is loaned, it creates a synthetic share. So if the float is 50M and the Short % of Float is 100% then there are 100M shares long (50M physical and 50M synthetic) and 50M short. That explains how WSB could own more than 100% of the total number of GME stocks issued. Naked shorts is a different issue and may or may not factor into that > 100% number. – Bob Baerker Jan 31 '21 at 20:26
  • @BobBaerker: It breaks down when more than 100% have no such agreement allowing their shares to be shorted. – Joshua Jan 31 '21 at 20:28
  • As long as shares are held in margin account and no Exemption Agreement has been signed, shares can be loaned out. – Bob Baerker Jan 31 '21 at 20:33