GME, Failure to Deliver, Short Selling, and Synthetic Shorts

I currently have no position in GME.

Like many of you, I couldn't help but notice the huge amount of attention paid to GME over the past week. According to S3 and Ortex, shorts seemed to have covered with a short interest now at 55% of float. 

Our lovely day traders over at Reddit seem to doubt these numbers, and believe that the short squeeze continues. One of their points is that there has been an unusual number of "failures to deliver" which to them means that hedge fund covering is fake news.

I came across the pdf below which I believe discusses how options strategies can allow a hedge fund to roll failure to delivers indefinitely (though maybe illegally?). It appears to me that a hedge fund creates a synthetic long, sells a deep in the money call option to get assigned a short position, then rolls the short position past failures to deliver through buy-writes. Somehow that allows the HF to attain cheaper stock borrow.

I'm not sure if I understood that correctly, so please chime in if I'm wrong.

What does this mean for GME equity? Is this an acceptable way to short hard to borrow stock?…

Hedge Fund Interview Course

  • 814 questions across 165 hedge funds. Crowdsourced from over 500,000 members.
  • 11 Detailed Sample Pitches and 10+ hours of video.
  • Trusted by over 1,000 aspiring hedge fund professionals just like you.

Comments (4)

Start Discussion

Total Avg Compensation

July 2021 Hedge Fund

  • Vice President (18) $520
  • Director/MD (10) $359
  • NA (4) $325
  • Portfolio Manager (7) $297
  • Manager (4) $282
  • 3rd+ Year Associate (18) $269
  • 2nd Year Associate (26) $251
  • Engineer/Quant (51) $237
  • 1st Year Associate (63) $188
  • Analysts (184) $168
  • Intern/Summer Associate (15) $125
  • Junior Trader (5) $102
  • Intern/Summer Analyst (208) $82