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What Is Going On With AMC GME And CLOV | Meme Stocks - YouTube
Channel: Newborn Investor
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hello everyone newborn investor here and
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welcome to another video
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the past couple of weeks has seen some
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crazy price action in stocks like
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sticker amc
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gme and chloe giving them a new name
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meme stocks so why exactly this is
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happening
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and what is causing these massive moves
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in today's video
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we are gonna talk about this so buckle
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up and stick around as we're starting
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right now
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by definition a meme stock is a stock
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with excessive trading volume from
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retail investors
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fueled by social media mentions game
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stock was the first meme stock reaching
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almost 500
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per share followed by amc and we have a
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new one
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this week ticker clob entire float
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or shares outstanding of these companies
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exchange hands in a single day with
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parabolic
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price action these massive moves expose
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some gaping holes in a financial system
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where retail investors are set up for
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failure so how do they really screw up
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retail investors
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we will get to it in a minute but before
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that if you like the video and find it
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valuable
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please make sure to hit the like and
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subscribe button your humble gesture
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keeps me awake at night
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and motivates me to put in the long
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hours for making these videos
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alright let's move on from the early
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stock market days
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retail investors had a fair share of
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losses but things have changed
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lately with meme stocks hedge funds and
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institutional investors are tasting
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their own
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medicine meme stocks have triggered a
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short squeeze and this time its sticker
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clob 2021 started on a rough note for
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clover health the stock price dropped
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almost 58
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from its all-time highs after a short
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seller alleged the company of fraud
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making it one of the most heavily
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shorted stock for the last two days
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following a retail frenzy the stock made
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a comeback
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rising almost 200 percent to understand
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this price action we need to talk about
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a major player that access the bridge
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between
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buyers and sellers clearing house a
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clearing house is a designated
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intermediary between a buyer and
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seller that validates and finalizes the
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transaction
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ensuring that both the buyer and the
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seller honor their contractual
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obligations
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it is the middleman that ensures
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delivery of shares to buyers and money
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to sellers
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stock brokers work with clearing houses
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to ensure the transaction is settled
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in a timely manner about 99 of the time
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trades are completed and settled without
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any hiccups
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but on a daily basis about one percent
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of the shares
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valued more than over a billion dollars
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and not delivered to the buyer within
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the requisite
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three days some delivery failures linger
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for weeks or even months and until that
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failure is resolved there are
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effectively additional shares of a
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company's stock
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circulating in the form of shares
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electronically credited to the buyer's
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account
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these shares are called fandom shares
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they can put downward pressure on a
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company's share price by increasing the
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supply
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there could be legitimate reasons for
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delivery failures including simple
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clerical errors but
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one illegitimate reason is naked short
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selling
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in regular short selling a trader
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borrows stock
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sells it and waits for the price to drop
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before buying shares back
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to repay that loan and pocket the
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difference this is an ideal short
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selling scenario where
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all parties play fair unlike retail
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investors who rely on retail brokers to
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facilitate short selling hedge funds and
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institutional investors rely on
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prime brokers for stock lending these
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firms rake in
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billions and billions of dollars as fees
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annually and are thriving
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they cater to hedge funds acting as the
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trading counterpart financing the trades
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loaning stock in other securities to
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execute short selling strategies
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so what happens when the hedge fund
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executes a short selling strategy and
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the prime broker
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never borrowed a stock it leads to
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something called
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naked short selling in naked short
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selling the trader sells the shares
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without properly borrowing the stock
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when the stock isn't properly borrowed
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the buyer at the other end of the short
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sale doesn't get delivery of the shares
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within the mandated
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3 day window now you may think how can a
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broker give you shares that they never
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borrowed
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this is where we have a serious problem
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fast working market makers are allowed
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to sell without borrowing to keep
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orderly markets but naked short selling
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as a strategy in itself
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is illegal however it's highly lucrative
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and tempting for the prime brokerage and
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hedge funds from the prime brokers
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perspective
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fees can be made by lending the same
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shares to multiple traders at the same
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time
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and from the hedge fund side a naked
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shot can be less costly since they have
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to pay more to borrow
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hard to borrow shares naked short
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selling increases the number of shares
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in supply
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and if there is not enough demand these
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excess shares could artificially reduce
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the price of the stock
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knowing these two concepts let's discuss
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what is exactly going on with the meme
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stocks
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all the reason meme stocks had one thing
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in common
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a high short interest these stocks were
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shorted heavily
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anticipating the stock price to cool
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down evidence reveals that naked short
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selling was involved
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this means a lot of fandom shares or
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ghost shares were in circulation
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a heavily shorted stock has the
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potential to trigger a short squeeze if
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the stock price rises quickly
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short sellers panic to cover their
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positions and this action snowballs to
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create a massive demand and without
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enough sellers and inventory
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shorts have to buy the stock back at any
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cost and they bid the prices up
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panicking more shots triggering a
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massive short squeeze
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with fandom shares from naked short
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selling the squeeze can be more brutal
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a high short interest alone does not
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necessarily mean that the stock is a
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short squeeze candidate
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another factor to consider is the
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percentage of short positions that are
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out of money also referred to as mark to
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market losses
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no shorts will be forced to exhibit a
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position that continues to be profitable
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a major percentage of out of money short
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positions combined with a high shot
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interest
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and high stock borrow fees is the
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perfect
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recipe for a short squeeze and this is
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exactly what is happening with meme
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stocks
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you heard the sanski from s3 partners
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shares some interesting data about these
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meme stocks
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according to desantis shorts are out of
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money in thicker when
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with 69 million dollars in 2021 mark to
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market losses
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but its short at rest is not high and
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only a small percentage
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of the float is shorted on gme shots are
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down with 7.3 billion dollars in 2021
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mark to market losses with decent short
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interest
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and around 16 percent of the float is
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shorted
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on amc we have a short interest of 3.6
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billion dollars with 11.5 percent of the
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float
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shorted amc has high short borrow fees
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making it difficult for the shorts to
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maintain their possessions
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finally on khloe over 30 percent of the
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float is shorted with a short interest
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of
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585 million the fees are around four
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percent and shorts are
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out of money which makes it a candidate
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for potential squeeze
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with meme stocks tables have turned and
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retail investors are playing the same
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hedge fund tactics against them
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however hedge funds are fighting back
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accusing retail investors of market
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manipulation
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regardless of how this plays out retail
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investors should be
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highly skeptical about hedge funds as
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they will always find a way to game the
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system
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and make up for the money lost now i
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would love to hear from you guys
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which stock do you think would be the
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next meme stock
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and why leave a comment below with your
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answer and i'll be sure to follow up
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with you
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also if you like this video and found it
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valuable please make sure to hit the
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like
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and subscribe button i really really
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appreciate your support
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so until you hear from me again stay
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safe and thanks for watching
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bye
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