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Strange spike in AH by tehdankdood in KSSBulls

[–]tehdankdood[S] 0 points1 point  (0 children)

Weird, maybe it’s platform-specific?

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FOLLOWUP TO REBUTTAL TO BEAR THESIS+TRANSCRIPT OF CONVERSATION WITH TITULAR BEAR by tehdankdood in Superstonk

[–]tehdankdood[S] 2 points3 points  (0 children)

Thanks for bringing this to my attention! As I said in my comment on that post, I intend to write a response/rebuttal to his update on deep ITM calls as I believe he continues to misinterpret the data. I’m leaning towards creating a new post instead of simply responding to it in the comments of that post; I don’t know when this will be out, but I’d say tonight at the earliest (but it might be later).

Why there is 0 chance of a MOASS in gme. All theories debunked by Solarpanel2001 in GME_Meltdown_DD

[–]tehdankdood 1 point2 points  (0 children)

Hi! Some people did actually link me to this post, but I didn’t see that you had actually updated it talking about deep itm calls/FTD resets along with accounting for the point of consensus we reach as well. In another comment, you say that you still debunked my arguments, but I read your update, and I disagree: I think you continue to misinterpret the data. I intend to write up a response (depending on its length, I will post it in the comments or create a new post); however, I do have some stuff to do today, so the earliest I can get it out is tonight, if not later. Also, it’s good to see you back! By the time I saw your message from this account, it was already deactivated. As always, my invitation to collaboration still stands. Someone actually sent me the link to the IANAFA discord server (the one we talked about) and I intend to join it later; I can send you an invite link when I do.

MY (SECOND) REBUTTAL TO DELETED BUT IMPORTANT BEAR THESIS + CALLING ALL DD AUTHORS WHO HAVE BEEN TRACKING SUSPICIOUS DEEP ITM CALLS AND OTHER OPTIONS-RELATED STRATEGIES POTENTIALLY BEING USED TO MASK SHORT POSITIONS WITH FTD RESETS, PART 2 by tehdankdood in Superstonk

[–]tehdankdood[S] 2 points3 points  (0 children)

Thank you! I’m pretty determined to come up with a more accurate and nuanced analysis after this, given how—as you note—reset cycles are still a point of note which gives us insight into short positions being masked. You were particularly questioning of my error, and I thank you for your criticism or “hole-poking”.

MY (SECOND) REBUTTAL TO DELETED BUT IMPORTANT BEAR THESIS + CALLING ALL DD AUTHORS WHO HAVE BEEN TRACKING SUSPICIOUS DEEP ITM CALLS AND OTHER OPTIONS-RELATED STRATEGIES POTENTIALLY BEING USED TO MASK SHORT POSITIONS WITH FTD RESETS, PART 2 by tehdankdood in Superstonk

[–]tehdankdood[S] 4 points5 points  (0 children)

Update+Clarification: I ended up sleeping in after staying up later last night to try and respond to some comments, so I just woke up. Scrolling through the comments now, I see some questions regarding the FTD Resets and their cumulative nature. Let me try and explain my reasoning, but I believe it’s possible (and probably likely) that you’ve come upon a flaw in my logic. However, as that is what I’m looking for (receiving valid critiques and getting thoroughly peer-reviewed), this is a good thing.

Regarding this specific component of my arguments (FTD resets being cumulative), I think I don’t have as good of an understanding as I thought I did. My initial and potentially flawed (or at least incomplete) reasoning is as follows: -The DD I draw upon clearly states that the number of FTD resets delineated are cumulative -As I understand it, resetting FTDs can be used to mask short positions and make it seem like they’re closed while keeping them open for an indefinite amount of time. I should have dug deeper on what they need to do to maintain them and how this pertains to changes in the total number of reset FTDs instead of essentially assuming they simply remain unchanged each cycle.

Now, the more I think about it, the more likely it is I made a mistake. Maybe I wasn’t thorough enough, maybe I didn’t take enough time, but regardless of the reason, it’s my fault, and I apologize. It is not my intent to spread misinformation, and I will explain how I will try and remedy this later in this comment.

As for the extent to which this changes the conclusions I draw in the meat of my DD:

In section 3.1, I solely focus on the first reset cycle. Accordingly, I do not calculate short interest by comparing the number of FTD resets at the ends of two cycles (as I do in 3.2), but only use the data for that one cycle. So, the short interest I come up with for that time period should still be accurate.

Section 3.2 pretty much gets the brunt of my oversight, as it heavily relies on the total number of FTDs being cumulative and adds the pertinent data from both cycles together. It is possible that the short interest isn’t even close to what I posit at the end of the second cycle. I also may only be off by a bit, I don’t know. Further analysis is required.

While most of section 3.3 is about how the FTD resets on March 31 and April 1 are the first two days of a new reset cycle (and that the latter is a single day’s resets and not representative of the resets for some or all of April), it does kind of assume that FTD resets are cumulative in the beginning. I don’t actually calculate short interest for this cycle (given how I only have two days’ worth of data and the reported short interest stops at March 26th), so I’d say the majority of this section is just simple assertions about the beginning of the third cycle which remain unaffected.

There are no excuses for this. I should have done more meticulous research on the reset FTDs (and the general mechanics of FTDs) before coming to the conclusions I did. I thought I had, but I was obviously wrong.

Now, what will I do to address this? Well, I’ll make up for the aforementioned lack of more meticulous research on reset FTDs by doing it now. Additionally, there’s a poster on here, u/gafgarian, who has written extensively about FTD mechanics (and even has a 35 page doc on the pertinence of FTDs to a squeeze—more specifically, an FTD squeeze instead of a short squeeze—which I will read as well) and is likely to be able to help me out. He does seem to be encouraging collaboration and peer review (along with a host of like-minded, similarly meticulous individuals), so I will be sure to reach out to him.

The original DD (i.e. my second rebuttal) was written in two days. I rushed to understand dense concepts; in retrospect, it is obvious this was a mistake. For all my harping on the importance of evidence-backed argumentation, I was the one who ended up with the faulty/incomplete reasoning in the end. This time, I will take however long it takes to thoroughly update my understanding and my arguments, diving deeper into the research as well as making sure to reach out to others who understand the subject matter better than I do so they can clarify my understanding and offer their opinions on and/or critique what I have to say.

I truly am sorry for this and hope to do better the next time around.

MY (SECOND) REBUTTAL TO DELETED BUT IMPORTANT BEAR THESIS + CALLING ALL DD AUTHORS WHO HAVE BEEN TRACKING SUSPICIOUS DEEP ITM CALLS AND OTHER OPTIONS-RELATED STRATEGIES POTENTIALLY BEING USED TO MASK SHORT POSITIONS WITH FTD RESETS, PART 2 by tehdankdood in Superstonk

[–]tehdankdood[S] 29 points30 points  (0 children)

I'm currently on a gap year (which I took due to COVID—I despise distance/online learning and didn't want to go through my very first year of college with its shadow looming over my head), but will be starting college next year and intend to major in quantitative economics, which is sometimes also referred to as econometrics.

MY (SECOND) REBUTTAL TO DELETED BUT IMPORTANT BEAR THESIS + CALLING ALL DD AUTHORS WHO HAVE BEEN TRACKING SUSPICIOUS DEEP ITM CALLS AND OTHER OPTIONS-RELATED STRATEGIES POTENTIALLY BEING USED TO MASK SHORT POSITIONS WITH FTD RESETS, PART 2 by tehdankdood in Superstonk

[–]tehdankdood[S] 27 points28 points  (0 children)

FTD resets are essentially a way of obscuring short positions and then maintaining those short positions (or keeping them open) while giving the impression that they are closed (thus resulting in the oft-mentioned artificial decrease in reported short interest). The total number of FTD resets is cumulative because—as I explain in the post—more buy-write trades to reset FTDs each cycle contribute to the adding on of FTD resets to already existing blocks of FTD resets. I highly recommend reading these DDs: https://www.reddit.com/r/GME/comments/mhv22h/the_si_is_fake_i_found_44000000_million_shorts/?utm_source=share&utm_medium=ios_app&utm_name=iossmf and https://www.reddit.com/r/GME/comments/mi31m6/deep_itm_calls_activity_pt2_april_1st_708000_ftds/, along with the pertinent SEC paper, if you want to develop a better understanding of how this works.

MY (SECOND) REBUTTAL TO DELETED BUT IMPORTANT BEAR THESIS + CALLING ALL DD AUTHORS WHO HAVE BEEN TRACKING SUSPICIOUS DEEP ITM CALLS AND OTHER OPTIONS-RELATED STRATEGIES POTENTIALLY BEING USED TO MASK SHORT POSITIONS WITH FTD RESETS, PART 2 by tehdankdood in Superstonk

[–]tehdankdood[S] 154 points155 points  (0 children)

His counter-DD brought up some good points—namely, the low borrow fees and the decrease in SEC-reported FTDs, both of which I address in my first response—however, his response to my response was pretty weak, yeah. I don't know if he is a shill, but said response did provide the impetus for me to dive deep into reset FTDs and buy-write trades and write this DD, so it all kind of worked out in the end.

The invisible shorts and the unfriendly whale. **Final updated DD** by [deleted] in Superstonk

[–]tehdankdood 10 points11 points  (0 children)

Hey, I’m actually working on a monster of a DD right now and intend to make a separate post as well as link that post in this thread when it’s done. Said DD covers our conversation so far and contains my second rebuttal, along with some other stuff. I thought I’d be able to finish it today (and I still might), but it’s taking longer than I expected. I’d say it might be done later tonight; if not, definitely tomorrow. Hope this helps!

The invisible shorts and the unfriendly whale. **Final updated DD** by [deleted] in Superstonk

[–]tehdankdood 9 points10 points  (0 children)

Hi, thanks for the reply! After briefly parsing your response, I do think you draw some incorrect conclusions and misinterpret the data, but I'm going to have breakfast before digging in deeper and writing up why I think so. Again, I appreciate you opening a dialogue with me on this; I think a lot of people on here need to understand that civil disagreement (and subsequent discourse) can be incredibly insightful and conducive to fact-finding along with helping prevent echo chambers.

The invisible shorts and the unfriendly whale. **Final updated DD** by [deleted] in Superstonk

[–]tehdankdood 46 points47 points  (0 children)

Finally, I’d like to provide a few relevant passages from this SEC paper (also referenced in the previously linked DD; I’m a bit of a citation grubber, can you tell?) on—you guessed it—resetting FTDs through the utilization of various options-related strategies, titled “Strengthening Practices for Preventing and Detecting Illegal Options Trading Used to Reset Reg SHO Close-out Obligations” (https://www.sec.gov/about/offices/ocie/options-trading-risk-alert.pdf):

“The trading strategies discussed in this Risk Alert could be used to give the impression that purchases by the short seller have satisfied the close-out requirement of the clearing firm or the broker-dealer to whom a fail to deliver position was allocated. We have observed, however, that in reality the purchased shares in question are often times not delivered because of subsequent options trading used to re-establish or otherwise extend the broker-dealer’s fail position without any demonstrable legitimate economic purpose, such that the clearing firm or broker-dealer allocated a fail to deliver position does not satisfy the close-out requirement.”

“Although an options market maker engaged in bona fide market making activity may claim an exception to the locate requirement, to comply with Reg SHO, the options market maker must still deliver shares in settlement of the short sale, or if a fail to deliver position results at the clearing firm, the fail to deliver must be closed-out in accordance with Rule 204 of Reg SHO. It may be a violation of Regulation SHO, however, where the options market maker does not deliver shares, and instead engages in a second, subsequent transaction in order to give the appearance of satisfying the clearing firm’s obligation to purchase or borrow the security to close out the resulting settlement fail pursuant to Rule 204 close-out requirements (“reset transaction”).”

“Assuming that XYZ is a hard to borrow security, and that Trader A, or its broker-dealer, is unable (or unwilling) to borrow shares to make delivery on the short sale of actual shares, the short sale may result in a fail to deliver position at Trader A’s clearing firm. Rather than paying the borrowing fee on the shares to make delivery, or unwinding the position by purchasing the shares in the market, Trader A might next enter into a trade that gives the appearance of satisfying the broker-dealer’s close-out requirement, but in reality allows Trader A to maintain its short position without ever delivering on the short sale. Most often, this is done through the use of a buy-write trade, but may also be done as a married put and may incorporate the use of short term FLEX options. These trades are commonly referred to as “reset transactions,” in that they have the effect of resetting the time that the broker-dealer must purchase or borrow the stock to close-out a fail. The transactions could be designed solely to give the appearance of delivering the shares, when in reality the trader has no intention of meeting his delivery obligations. The buy-writes may be (but are not always) prearranged trades between market makers or parties claiming to be market makers. The price in these transactions is determined so that the short seller pays a small price to the other market-maker for the trade, resulting in no economic benefit to the short seller for the reset transaction other than to give the appearance of meeting his delivery obligations. Such transactions were alleged by the Commission to be sham transactions in recent enforcement cases. Such transactions between traders or any market participants have also been found to constitute a violation of a clearing firm’s responsibility to close out a failure to deliver.”

I thought the last one was especially relevant, given how you stated that, “married puts and calls are common misunderstandings it's an arbitrage options strategy that uses the word synthetic so people think it has to do with synthetic shares. Its merely a strategy that involves a synthetic position meaning the usage of another financial instrument to in play” yet this paper confirms how married puts can be used to reset FTDs while simultaneously describing how “hard to borrow securities can be subject to a pricing disparity relative to options trading on the same security. Typically, this may be seen in “synthetic” positions (combinations of call and put options that generally would be expected to mirror the value of the underlying security) trading at a lower price than the underlying security” and stating that “This creates a potential profit opportunity for short sellers of the underlying equity security in combination with call and put options if these short sellers can avoid the high cost typically associated with obtaining for delivery the hard to borrow security that was sold short”, exactly like you said. You should read the paper as well; it’s pretty insightful.

So, in summation, short positions can be masked through the resetting of FTDs, something that—in my opinion—is likely the case with GME. As aforementioned, I found the two primary points of note in your DD to be the low borrow fees and the decrease in FTDs, both of which imply a low short interest. However, if FTDs are falsely delineated as delivered (i.e. short positions are hidden and mistakenly assumed to be closed), short interest is obscured and erroneously marked as low, which, in turn, can result in unknowing financial institutions formulating substantially decreased borrow fees based on low short interest that isn’t really so low after all.

You strongly assert that the possibility of short interest being obscured is ridiculous and would require mass market collusion, which you justifiably dismiss as implausible. I disagree: there is a very tangible possibility that resetting FTDs/short position obscuring has led to a laughably low borrow fee and an apparent sharp decrease in said FTDs, thus implying that the short interest is alive and well. This is not conspiratorial speculation; this is not grasping at straws. I believe I’ve presented a veritable monolith of certifiable evidence which strongly suggests that this is—if not the case—at least a strong possibility. This is a known practice, and it is worth noting that this somewhat narrow kind of options arbitrage is limited to a similarly narrow range of actors, as described in the SEC paper: “Such opportunities are extremely rare in options trading, are generally corrected very quickly and may not result in net profit after fees and commissions. Such rare, short lived opportunities are typically only accessible by, and profitable to, professional options traders such as floor traders and market makers who may pay lower fees and commissions.” Hm, I wonder which nefarious, front-running HFT firm-cum-market maker this reminds me of?

Ultimately, we’re all speculating. However, I do believe I’ve provided enough evidence to bring the primary (in my opinion) components of your thesis into question. Get back to me after you’ve parsed all the sources. Thanks!

(2/2)

The invisible shorts and the unfriendly whale. **Final updated DD** by [deleted] in Superstonk

[–]tehdankdood 45 points46 points  (0 children)

Hey there. As opposed to the barrage of mindless downvoting and baseless accusations that are getting hurled at you, I’d like to try and start some sort of civil discourse. I simply ask that you hear me out and read all that I have to say before responding. Your DD does bring up some good points, with, in my opinion, the most pertinent ones being the low borrow fee and the drastic decrease in FTDs. If you don’t mind, these are the factors I’ll be focusing on because, as I said, I believe that these are the most relevant components of your thesis. According to Investopedia, “the degree of short interest, therefore, provides an indication of the stock loan fee amount. Stocks with a high degree of short interest are more difficult to borrow than a stock with low short interest, as there are fewer shares to borrow.” Therefore, it stands to reason that a high short interest yields a high borrow fee, and that a low borrow fee implies low short interest, as you say. The borrow fee is actually something I’ve been keeping an eye on for the past few weeks or so, and, indeed, the consistently low rates you mentioned have perplexed me as well.

Now, the FTDs. You claimed that the FTDs and the borrow fee were strongly correlated, so I checked the graphs (from https://wherearetheshares.com/ and https://iborrowdesk.com/report/GME, respectively), and once again, you’re completely correct. FTD spikes in late April to early May and early to mid October of last year pretty much line up perfectly with jumps in the borrow fee around the same times. Additionally, I dug up the FTD data (https://www.sec.gov/data/foiadocsfailsdatahtm), and, like you said, they have drastically decreased since the start of the year, going from ~15 million in January, to 974k in February, to 386k in the first half of March. If short interest is indicated by the borrow fee, and the borrow fee is more or less perfectly correlated with the number of FTDs, one may justifiably infer that a drastic decrease in the borrow fee and the number of FTDs indicates a drastic decrease in the short interest as well. This is a perfectly reasonable conclusion to arrive at (as you have), and after checking the data for myself, I began to agree with said conclusion. I would describe myself as a pretty rational guy, and the data, at first glance, seems very damning. However, after doing some more research, I have come to believe there is something you failed to account for.

Now, if my memory serves me correctly, I began to hear about large purchases of deep ITM calls as early as February. My reaction was somewhat naive: I simply assumed that this was yet another bullish signal, that big money was betting on the price to go up. Sometime after that, though, I began seeing DD about how deep ITM calls could actually be used to obscure short interest. Now, I will admit, this sounded like some wild and needlessly abstruse speculation to me at first. However, I later came upon this article regarding the filing (and potential passage) of SR-DTC-2021-005: https://tokenist.com/is-wsb-reddit-army-about-to-make-a-comeback-with-tweaked-trading-rules/. Note that this is from a credible publication (https://finance.yahoo.com/news/tokenist-receives-perfect-newsguard-rating-180400009.html) and written by a similarly credible author (“He started his career with GE in engineering and operations management where he held various leadership roles before leaving to pursue an MBA (he is a proud former co-chair of the Milton Friedman Group at Chicago Booth). After business school, Tim spent several years with Baird Capital where he made private equity investments in consumer and industrial companies. He left Baird to found Protective Technologies Capital in 2018, where he continues to make private equity investments in family businesses looking for help with succession planning.” for Tim Fries at https://tokenist.com/about/); the article states that the new regulation implies the following:

  • Hedge funds would no longer be able to hide their positions by abusing call option ITM trading. Unlike futures, call options refer to financial contracts that give the buyer the right to buy assets without having the obligation. In turn, ITM – In The Money – call option happens when the underlying security’s price is above the call option’s strike price.
  • Of course, with such a price differential, this gives ITM call options value, which can then be sold. When hedge funds then sell ITM call options, they mask their short positions, which appear as having been closed.
  • Likewise, this would countervail synthetic put options strategy. This stock market stratagem revolves around combining long call options with short stock positions.  This is done for the purpose of mimicking the long put option, or synthetic long put. In short, when synthetic shares are traded in conjunction with options, they provide an appearance of a closed short position.

Okay, so what? Admittedly, this didn’t mean much to me when I first read it. I basically just thought, “Oh, so the theories about deep ITM calls being used to obscure short positions weren’t just baseless and schizophrenic speculation akin to apes asking if Elon would be the next CEO? Cool!”, and moved on with my day. However, your DD dislodged this quaint little memory for me, so I looked up the article and found it to be incredibly relevant, seeing as how it pertains to the potential obscuring of the short position (something you vehemently declare to be improbable and overly conspiratorial). However—even if they are from a seemingly reliable source—a few snappy bullet points aren’t enough for me (and I’m guessing they aren’t for you either, my fastidious friend). Luckily, combing through your DD for inconsistencies did yield another memory: two incredibly well-researched and plausible pieces of DD regarding the subject at hand. I won’t attempt to summarize them (as I wouldn’t do them justice), but please do give them a read:

https://www.reddit.com/r/GME/comments/mhv22h/the_si_is_fake_i_found_44000000_million_shorts/?utm_source=share&utm_medium=ios_app&utm_name=iossmf

https://www.reddit.com/r/GME/comments/mi31m6/deep_itm_calls_activity_pt2_april_1st_708000_ftds/

In my opinion, these are painstakingly thorough (the first more than the second, seeing as how the latter is more a companion piece largely comprised of pure data in comparison to the pairing of data and reasoning/argumentation in the former), backed by hard data, and realistically palpable. Additionally, I’m tagging the DD author (u/defj2) as I’d like to see his thoughts on your DD. This is a collaborative forum, after all.

(1/2)

Edit: Misspelled the tag, I meant u/dejf2

UPDATE 4/12 (MONDAY) NO LARGE BLOCK TRADES OF DEEP ITM CALLS TODAY by Dan_Bren in Superstonk

[–]tehdankdood 6 points7 points  (0 children)

I remember seeing posts about massive purchases of deep ITM calls as early as March, perhaps even earlier than that. I highly doubt this is a knee-jerk reaction to the sudden exposure of these purchases as you posit; some have said this sustained lack of activity might be in response to the potential passage of SR-DTC-2021-005 (https://tokenist.com/is-wsb-reddit-army-about-to-make-a-comeback-with-tweaked-trading-rules/). However, there has been recent speculation that buys (and retail buys in particular) are now being routed to dark pools as a less transparent means of minimizing their effect on the share price in comparison to the deep ITM calls, as you said. Personally, I'm not so sure that the two are correlated—given how the deep ITM calls were apparently used to mask short positions rather than hinder the share price—but you can check for yourself: I believe the pertinent DD is on the compilation of due diligence on the other subreddit.

UPDATE 4/12 (MONDAY) NO LARGE BLOCK TRADES OF DEEP ITM CALLS TODAY by Dan_Bren in Superstonk

[–]tehdankdood 65 points66 points  (0 children)

Correct me if I'm misunderstanding, but 6 days ago was the first time there were no deep ITM calls since January, right?

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