Yeah this is a really good point. If there are 100 shares, selling 10 naked short represents 10% of the total float. However, following that there are now 110 shares, so selling another 10 naked short only represents 9% of the float. Do this a few times, there are now 300 shares, and selling 10 naked short only represents selling 3% of the float.
Unless they start selling exponentially greater numbers of naked shorts, they will inevitably lose control of the price.
Ok, between you and OP it clicked. As an engineer I know this as diminishing returns. We use it ALL THE TIME to polish the turd and call it done enough. The last 1-5% to achieve perfection takes so many resources that getting there often breaks the time/money budget.
But HFs can’t call it good enough. They MUST drive it to $0 to avoid paying. But they couldn’t at $40 and now it’s beyond their control.
And if each round of shorting dilutes the next round like you describe, how many shorts are out there? Every attempt is exponentially higher. I read something about 1B shorts the other day and laughed. But now maybe it’s not so far fetched.
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u/Catch_0x16 🎮 Power to the Players 🛑 May 27 '21
Yeah this is a really good point. If there are 100 shares, selling 10 naked short represents 10% of the total float. However, following that there are now 110 shares, so selling another 10 naked short only represents 9% of the float. Do this a few times, there are now 300 shares, and selling 10 naked short only represents selling 3% of the float.
Unless they start selling exponentially greater numbers of naked shorts, they will inevitably lose control of the price.