"Shorts never closed"

• During the sneeze of January 2021, the short interest of GME exceeded 100%, indicating a tremendous quantity of shares sold short that must eventually be closed
• The sneeze was not permitted to play out naturally. On January 28, 2021, a large number of financial institutions in unison prevented any further purchasing of shares of GME
• This drastic maneuver worked to the benefit of those that were positioned short on GME and interrupted the spontaneously arising momentum of GME
• Mainstream financial media CNBC reported that Melvin Capital closed its GME short position and also ran ads pushing this story
• In the weeks following the sneeze, the reported GME short interest went down significantly, which generally contradicts the idea that shorts never closed. However, deeper investigating of the situation made some investors skeptical of the reported short interest as an authoritative source of data; there are methods that some market participants can utilize to be net short a stock without that appearing as short interest.
• The view that shorts never closed has been a contributing factor to the conviction held by some GME shareholders that GME was a good long-term investment, on the basis that all existing short positions represent eventual future buying that will drive up the price of the stock.

CNBC ran an article the morning of January 27, 2021, stating: "Melvin Capital closed out its short position in GameStop on Tuesday afternoon [January 26, 2021] after taking a huge loss, the hedge fund’s manager told CNBC’s Andrew Ross Sorkin."

CNBC even ran ads promoting this claim that Melvin closed its short position.

This claim is logically dubious. No real evidence was ever produced to substantiate the claim. The claim apparently originated from Melvin Capital, so this was a narrative provided by them back by no evidence. It is logical to assess that this is the version of events that Melvin Capital wanted people to believe based on their position, a narrative that would benefit them if people were to believe that it was true.

After all, if it was the truth, then for what purpose would they publicly announce it? It would be of no benefit to announce it, and for somebody to have paid to promote that story. It would sort of be like a poker player announcing their supposed position to the other players at the table.

Even if it was true that Melvin Capital closed their GME short position, this would not account for any of the other market participants that continued to have an open GME short position.

Amidst online discussions about this topic that were happening during that period of time, on February 2, 2021, Mark Cuban did an AMA discussion on r/wallstreetbets . Mark was asked if it was possible that the hedge funds would just not cover their shorts at all, and just act like it never happened. To this, Mark replied: "Their goal is to never cover their short. But that would take the company going out of business or being delisted. That won't happen here."

These discussions further validated the idea in the minds of some GME investors that shorts never closed, and that it would logically be in the interest of those positioned short to propagate the narrative that GME shorts did close, when in fact they hadn't.

In September of 2021, a post in r/superstonk introduced GME shareholders to the concept of "cellar boxing," based on an original post from March 2004 that described a specific market manipulation strategy involving naked short selling.

Cellar boxing, as described in the original post, is a strategy where market makers drive the price of a stock down using legal loopholes and naked short selling, profiting greatly in the process, and ultimately causing the death of the target company. In the process, the perpetrator creates a large quantity of shares sold naked with the intention of never closing that position by ensuring that the victim company dies, getting the stock delisted, and thus the naked short position never needs to be resolved because the stock no longer exists.

When the topic of cellar boxing was introduced to the GME shareholders of r/superstonk, it provided insight into market behavior that further corroborated the notion that shorts may have never closed. Cellar boxing described a behavior in the market where a perpetrator has the means, the motive, and the opportunity to fraudulently profit in the process of killing small victim companies by creating a large quantity of artificial shares sold short, naked, with the intention of never closing out that naked position.

In the weeks following the peak of the sneeze, the reported GME short interest went from over 100% in January 2021 down to below 20% in February 2021. This reported value would indicate that a significant amount of the existing short positions were closed out and no longer existed, thus contradicting the notion that "shorts never closed."

In the face of this reported value dropping significantly, why would GME shareholders therefore continue to believe that significant obligations continued to exist?

There are numerous methods that market participants can utilize to be functionally short on a stock without that position showing up in the reported short interest.

• Total Return Swaps / Contracts for Difference: A market participant enters into a swap agreement that mirrors the economic exposure of shorting a stock without reporting a short position
• Synthetic short position via options: A market participant can buy a put option and sell a call option with the same strike price, creating similar exposure as selling shares short, but by using options this method does not involve short sales and thus does not appear as short interest.
• Naked short selling: A market participant can illegally naked short sell stocks and not report this information.
• Short selling an ETF that contains GME: An ETF, for example XRT, might contain within it a variety of stocks including GME. A market participant interested in betting against GME could short sell shares of such an ETF, positioning themselves against all of the stocks in that ETF, without impacting the reported short interest of GME itself. If the participant wanted to use this strategy while intending on specifically targeting GME, they could buy shares of the other non-GME stocks that the ETF contains, while shorting the ETF, thus creating a position that is functionally short GME.
• Use of offshore entities: A market participant could route trades through offshore entities that are not subject to U.S. reporting requirements. Doing this is potentially illegal and risky.
• Fail to report real short positions: Reporting rules require broker-dealers to report the number of shares they have sold short across all customer and proprietary accounts. It is entirely possible that a broker-dealer could simply fail to report short sales, in contravention to the reporting requirements. While this could be risky and illegal, it does not preclude it from being a possibility.

Using a combination of methods such as these, sophisticated market participants with an interest in doing so could theoretically reduce the reported short interest of GME even while the true effective GME short exposure remained very high.

On August 23, 2022, a GME shareholder called in to Jim Cramer's Mad Money, claiming he was going to talk about some other stock, in order to make a statement about GME. The caller, "Victor from California," said that because of Jim Cramer, he bought more shares of GameStop, and Bed Bath and Beyond, followed by the statement "shorts never closed, boom!"

The situation was obviously awkward for Jim Cramer, who immediately understood that he had been pranked. Cramer replied "not really," and immediately pivoted the conversation away.

This incident demonstrated that there continued to be an ongoing narrative competition over GME. It received a lot of positive attention on r/superstonk, amidst a backdrop of continuous negative sentiment of GME coming from mainstream media outlets such as CNBC. It demonstrated that GME shareholders continued to believe that shorts never closed, over a year and half after the sneeze.