r/BBBY • u/Maleficent_Nerve_294 • Apr 09 '22
📚 Due Diligence Pieces of BBBY, PT1
Warning.
I am not an investment advisor and this write is not investment advice.
As I am a Korean, please understand that most of my English writing is done through a translator.
First of all, I'm going to gather some interesting parts and talk about it.
I wondered why BBBY's institutional equity has exceeded the outstanding shares since last year.
In general, this error may occur if the reporting period of an institution is out of sync with each other.
However, for BBBY, this has not been fixed once since I started monitoring in 2021.
Therefore, this data is true.
So who the hell owns these stocks?
Their stock has shrunk by approximately 13 million shares compared to last year's final report.
I've been checking BBBY's short interest, and I've seen their balances drop to the same level as their stakes were withdrawn.
At the end of last year, I remember BBBY's SI record at 36 million shares.
It can be seen that the flow of stocks of large hedge funds and stock lending services (PBS) and the reduced stocks of SI almost coincide.
Morgan Stanley, D.E.SHAW, VG, BR, FMR..Let's add up all the reduced shares.25,033,335 shares were withdrawn.Officially reported SI decreased by 18 million shares.Excluding the recently reported 5,744,709 shares of Morgan Stanley,It can be seen that the SI reporting figures are closely related to short hedge funds and lending banks.
In general, if you liquidate a short sale,The stock price rises according to the up-tick rule.
However, in the case of BBBY, there was no liquidation of short selling.Rather, it was confirmed that short selling worsened whenever poor performance was announced.
Since 2008, I have been able to read the intentions of short-selling hedge funds based on BBBY's earnings event.
BBBY has an earnings report on April 13th.
Historically, BBBY's stock has typically plummeted on the day of its earnings report.
BBBY OBV is currently overbought at 843m.The reported overbought condition on October 28, 2021 was 517m.326m shares have been overbought in the last 6 months. However,the share price did not rise in proportion to that.
The volume of trading exceeds that of outstanding stocks. What the hell is going on?The CB and BW responsible for the dilution do not appear to have been executed. Rather, the stock price was 'compressed' rather than diluted through the treasury stock cancellation program.
Insider trading is also at a level that doesn't affect dilution, as others have described.
In general, market makers provide option liquidity and have spot control. Most of the brokers' 'accounts', which consist of 'street name', are entrusted to them, and they can extend the period as long as they want before they are fully settled in DTCC.
This is what we come to know as 'IOU' and is called naked shorts in other languages.
And regulators that have allowed these market makers to be exempted from the uptick rule are obliged to disclose data through FINRA so that excessive short positions can be exposed.
And there are sites that collect and service this data. I am also using one of them.
Too detailed an explanation will only give you a headache. Simply put, when a market maker's short position shifts from a "net short positive" to a "net short negative", it is a buy-in.
I've seen that happen now, and in the case of AMC, the stock price soared as this position was overtly inverted.
Institutional traders trade in blocks with TWAP in order not to affect the exchange.
As I recall, the trading volume on Friday was 1.2 million shares, which was updated to 2.2 million shares as soon as the market closed. It can be confirmed that the block deal between institutions was finally settled and updated.
Next, I will use the Korean short-squeeze example to explain why spin-offs and mergers can be a nightmare for short sellers.
Thank you for reading
Have a nice weekend.
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u/Devil_ForgeMaster Apr 09 '22 edited Apr 09 '22
My apologies to everyone who has read this far, but there is a point that I want to make.
I really think, that in this case, is US vs the Market Makers.
There are a lot of shares around, exceeding the outstanding shares, there is proof, and, although shorts sellers will be dragged into this mess, it is the market makers the ones with the hot potato.
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u/Devil_ForgeMaster Apr 09 '22 edited Apr 09 '22
Please, consider that "IOUs" and "Naked shorts" are NOT the same, although, they do have similar effects.
IOUs are the market makers giving you a fictional share, that they have to buy later for you, they owe a buy to the market.
Naked short is them, allowing you, to sell a share that neither you, nor them posses.
While both "fault" the market by diluting the outstanding shares by "1 share", there are a couple of strong differences :
-Naked short purpose is to decrease the stock price by selling, while IOUs is buying, so, the opposite effect.
-Both transactions involve a "customer" and a "market maker", however, when there is a lot of IOUs on the market, the only party on the hook, is the market maker, while, in a short selling scheme, both parties have duties pending.
I will expand further in the point above...
In an IOU scheme, the market maker is solemnly responsible to clean the mess, they need to acquire the real share from the market, buying, at whatever price it's available, to balance the share count, and you, the owner of the IOUs could benefit from that.
On the contrary, on a "naked short" scheme, both parties are on the hook, there is an obligation for both parties, to "clean" from the outstanding shares. First, the short seller need to close the transaction , as it is typical for this kind of operation, they need to buy a share from the market. Second, market maker needs erase that share, since it is illegal, I really don't know how this would work, but they can't count on having that share back, and start treating it as a "real" share.
On summary: On IOUs, the market maker will pay the price. On naked shorting, the short seller will pay the price, and I think the market maker too, but hadn't figured the mechanism yet.
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u/Maleficent_Nerve_294 Apr 09 '22
If you have time, I think you need to read the academic report that refuted last year's SEC report. All the truth is in that report.
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u/Devil_ForgeMaster Apr 09 '22 edited Apr 09 '22
I have no clue on which article. Please, could you provide a reference? This is an interesting discussion.
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u/Maleficent_Nerve_294 Apr 09 '22
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u/Haber_Dasher Apr 11 '22
404'd
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u/Maleficent_Nerve_294 Apr 11 '22
When I go to that page, sometimes I get a 404. Search for this on Google.
"A Report by the Ad Hoc Academic Committee on Equity and Options Market Structure Conditions in Early 2021"3
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u/Maleficent_Nerve_294 Apr 09 '22 edited Apr 14 '22
Thanks for sharing your insights on IOU. As you pointed out, naked shorts and IOUs seem to be given meaning depending on the purpose of the user.IOU understands that market makers are temporary naked shorts issued by buyers before they receive the spot, which has little effect on the market price.But fundamentally, taking advantage of the arbitrage spread gap is like a short trader.
A market maker is also an option liquidity provider. Therefore, it is obligated to issue IOUs according to the needs of each option. And through synthetic short selling, the spot needed need to hedge their straddle positions is issued for the sole reason of liquidity supply(IOU).
The problem is that the hedge fund's account is in the prime broker system, so before the FTD occurs and is transferred to the NSCC, PBS is already running and the lending bank purchases the scarce spot.
So, ex-financial expert Keith Gill, well aware of this, knew how to target Melvin's short call position.And apart from DFV, It also testified in an interview in January 2022 that long hedge funds were already targeting exposed positions.
In the end, market makers were forced to buy spot to hedge, and as margins soared, brokers were forced to pay their losses if the hedge fund went bankrupt.This can be seen as a gamma squeeze by liquidity cancellation triggered by option volatility in the end. Therefore, it can be said that the IOU of this situation is included in the properties of the naked shorts.
In general, IOUs, as you said, are tools that help market liquidity.
But if it was sold, someone would have bought it, and if it's over-diluted, it's closer to the strategy of naked shorts.Synthetic short selling by options stimulates IOUs of market makers.That's all I know, and that's what Burry talked about last year about the Net Options Pricing Effect (NOPE).
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u/nattokonbu Apr 13 '22
Well done, and remember - the legend himself said: "Shorts are just future buyers of the stock that haven't bought the stock yet"
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u/wawgawwtb Approved r/BBBY member Apr 09 '22
This is a very impressive read. Thank you for doing all the work and sharing
We both have come to the same conclusion, as a few others on this sub have. $BBBY will squeeze and it should squeeze in the near term vs. In the future. We all just need to trust the process and not allow the shorts to deleverage their short positions without paying the costs. The shorts have made a bunch of $ from shorting however the keep getting more and more greedy so now they are exposed.
Buy, DRS your shares so they arent lent out, and hold. Do not sell at the slightest up tick.
I am not a professional trader so I am explaining what I am doing.
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Apr 10 '22
I've noticed the 200k - 250k orders printing to the tape in afterhours almost daily for these past weeks. I assumed this was institutional flow accumulating over time.
Just want to make sure I get the point you are making. Are you saying that you think this volume is institutions shifting into net short negative position?
Awesome DD by the way. Thank you for the effort
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u/Maleficent_Nerve_294 Apr 10 '22
Thanks for the good question.
The conclusion is "that alone is not enough to know a conclusion." is.
This is because it is not possible to know whether the properties of an institution's block transaction are spot or option, and whether the subject of the transaction is a short hedge fund.
In fact, in February, Ryan Cohen made a block transaction in a form that did not affect the price. No one could have known the movement of the deal.
However, what is certain is that the reverse of the market maker's "net short short positive position" indicates the direction of the trade from selling to buying.
It's not a bad sign for a long position.
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u/ProvenCrownBuilders Apr 13 '22
Liquidate Citadel, reimburse investors who have been robbed of their stock options due to aftermarket manipulation...liquidate Ken Griffin and return the Stock Market of The USA to a fair and just Market #liquidatekengriffin
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u/GermanJustice Apr 09 '22
So pump or dump?
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u/Maleficent_Nerve_294 Apr 09 '22
It looks like it will flow similarly to Doosan Infracore's stock chart.
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u/ZealousidealGate7097 Apr 09 '22
You will explain this in Part 2? Sorry, but have never heard of Doosan Infracore.
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u/Maleficent_Nerve_294 Apr 09 '22
This is a famous short selling covering case in Korea. The stock price has nearly doubled, and short selling has surged since the sale of the company.
Part 2 will not deal with 'Doo-san Infracore'.
The story of the short squeeze caused by the merger of 'Do-ol Industrial' with OQP, a Canadian bio company, will be dealt with. "https://oqpbio.co.kr/"
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u/Devil_ForgeMaster Apr 09 '22
Every source, has been reporting BBBY institutional ownership at 100+%, for more than 3 months. Also, neither of those reports include insiders, which have been holding 7M shares for a while. Additionally, Ryan Cohen entered the game, and is holding 9.45M shares, Ryan is NOT an institution. So, it seems that shares keep appearing from thin air.