I completely understood the idea of Starlink and expected that it would be successful and useful, which it is. I've worked in data centers for decades now, and I am incredibly skeptical of the "data centers in space" sales pitch. It seems like an actual scam.
Data centers submerged in the ocean or placed in the desert seem much more promising. But I have only an enthusiast's understanding of rockets and physics, so I'm genuinely open-minded to the possibility.
Is there anyone credible who thinks this is a plausible pathway for SpaceX to make huge amounts of profit?
Repairability and depreciation are the main problems. A earth data center can be repaired, depreciated, and recycled at EoL recovering some of the costs. SpaceX datacenters are a total write off from the moment they are launched.
Isn't the problem also that because of radiation, processors in space either need to have larger feature sizes OR additional shielding / redundancy? Seems like a pretty high price to pay for slightly cheaper energy...
The Microsoft design of filling an airtight submersible structure with argon and dropping it to the bottom of the ocean floor is the alternative design - you’re not looking to do repairs but amortize the low cost of failures across the value you extract.
The biggest issue with space is not repairability but heat - when you’re in a vacuum the only way to disperse heat is through black body radiation and that’s horribly slow compared with normal mechanisms. It means you need giant physical structures whose sole job is to accept heat from the processing core and radiate it away and have so much more material that you can radiate it at the speed you generate. It’s a huge unsolved physics problem which is why everyone is skeptical.
That's actually not a concern I'd have, because hardware that has been sufficiently tested and burned in tends not to fail for a very long time.
I've done builds that ran for 5+ years with virtually no physical attention, just continual degradation as hardware is taken out of service. There's also not much money to recover from 5+ year-old hardware.
I used to run AI inference GPU servers in road vehicles, which is probably an even harsher environment than a single rocket launch, and the vibration problems are real but solvable.
All of the losses are from the xAI/Twitter side of the house. And Elon Musk needs a flimsy story so that no one sues him. It doesnt have to be a believable story, it just needs to be enough so that no lawyer cares to bring a case in Texas vs SpaceX and Elon for breach of fiduciary duty.
The story did its job. Elon offloaded the money losing Twitter/xAI out of his personal wealth and onto the public through SpaceX. Done and done. SpaceX is now an AI company (or contains one) and needs to perform as such.
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It's literally the same story as Tesla/Solar City. Make up bullshit about solar panel synergy with EVs and buy out his cousins failing company. Make it TSLA shareholders problem for figuring out how to make a profit from the failing company, it's no longer Kimball Musks concern since the buyout
Heat dissipation isn't as big a concern as it seems: the weight of the solar panels is significantly larger than that of the heatsinks you'd need per typical modern gpu
> Is there anyone credible who thinks this is a plausible pathway for SpaceX to make huge amounts of profit?
Scott Manly (who I think is credible) has a video where he goes over the logistics of SpaceX's space based data centers. He seems to think its an idea worth perusing, but its important to note that his expertise is space tech, and not business strategy.
Yeah, I have no doubt that it's possible to put GPU servers in space. The Starlink satellites are servers in space. The question is whether it's even remotely profitable to do this for AI training/inference servers.
The only way it makes sense is if you think the massive job losses due to AI will lead to people burning down datacenters on earth. An older spec'd and unmaintainable datacenter is worth way more than one in ashes.
The ISS produces about 120 kilowatts of electricity.
An Nvidia Blackwell B200 GPU uses 1.2 kilowatts of electricity.
So, you would need a similar array of solar panels and radiators just to power 100 of them. You probably would need 2-3 launches for a satellite this big, and realistically, you would just make smaller satellites.
That's $4,000,000 worth of GPUs, A couple millon or more of RAM, SSDs, etc., a radiation-proof satellite housing to support all of that hardware, solar arrays, launch costs ($74M per Falcon launch), all for maintenance to be impossible and the hardware to become obsolete in a couple of years.
It's a delusion unless we invent some way to go to space for free.
SpaceX has accomplished spectacular things in reusable launch vehicles and space-based networking. It will soon restore the heavy launch capability that the US lost when it retired the Saturn V in the 1970s, but in an affordable and sustainable manner. SpaceX is almost single-handedly keeping the US ahead in space.
I'm bullish on SpaceX as a company in terms of technical accomplishment.
Buying SPCX would make sense at about 1/4 of its IPO price. The IPO price and subsequent rise was inflated via hype and artificial supply restriction, i.e. publicly selling just 4% of the total company ownership.
> It will soon restore the heavy launch capability
Maybe!
>but in an affordable
Maaybe!
>and sustainable
Maaaaaaybe. Gotta start gigantic scale methane production from solar or whatever first.
We sometimes get in the habit of thinking Elon, who is a Nazi, accomplishes everything he sets out to do, since he was so incredibly effective at getting EVs going and getting the Falcon 9 going. But he has plenty of misses too, like ruining the foundations of democracy, being over 12 years late and counting with self driving cars, hyperloop, the cybertruck, etc.
Insiders who have locked up stocks but still want to sell could presumably just short the stock and take out a loan secured on the stock to get the financial effects of selling, without actually selling...
I wonder if that's what's happening with ~$1T of stocks currently locked up...
If anyone knows of a broker who will let you withdraw the proceeds (cash) of a short sale, I will buy the name of the broker off you. I'll also let you know why I would pay for this (although you may already know anyway, hah).
I spent a week researching this talking to fidelity, schwab, IBKR, and Robinhood, none would allow it.
Of course whether or not a contract is or is not enforceable as such is also a matter of law. As I understand, this IPO was unique for a variety of reasons. The fact unique terms are promulgated in a contract does not mean (at least in saner times) that they are automatically immune to regulatory scrutiny.
Against corporate policy, it's against the law only if they trade on material non public information.
Once the lockup expire they'll be able to trade (sometimes there's trading window but some tech company don't have any for lower level employees), and they'll still be insiders.
When you own stock at a broker in a margin account, you may sign an agreement to allow the broker to lend out your stock to someone else. For lending your stock, you are entitled to a stock-borrow fee which usually is quite small say 0.25%, and paid by the borrower (short-seller). The borrower then sells the stock to someone else. At a later point, the short seller closes their position by buying it back, and returning it to you. This is roughly the mechanics of it. So, to answer your question, the short seller makes money from folks who buy high and sell low. In this specific example, the stock-borrow fee say was 5% because, the float is still low, and if the short seller borrowed at $165 after the IPO and sold it, and then bought it back at $135 and closed their position, they made money from folks who bought at $165 and sold at $135.
But to sell the calls, you should own the stock first. Puts can be bought w/o owning the stock. Granted, the put buyer pays the premium, so you don’t get guaranteed money in your pocket like you would selling calls.
Alice holds SpaceX stock and believes it will rise. Bob believes the stock will fall. Alice and Bob reach an agreement for Alice to "lend" their SpaceX stock to Bob for a small "fee". Bob immediately sells the SpaceX stock at the current market value. After some time Bob will buy back the sold SpaceX stock at the current market value (hopefully less than Bob sold it for) and return the "borrowed" SpaceX stock to Alice thereby fulfilling the original contract.
It's also possible Bob's thesis on SpaceX could have been wrong and the shares could skyrocket. There's usually a provision in the contract for Alice to recall the shares she lent to Bob. In this case, Bob would be forced to buy SpaceX stock at the current market value and likely lose money on the overall trade.
To answer your specific question, "Who do you make money from?" It's actually not clear. Bob selling-high and buying-low doesn't necessarily mean whom Bob sells-to and whom he buys-from are on losing sides of the trade despite Bob making a profit. E.g. the buyer of Bob's short-sell could write calls and the stock could close pass the strike on expiration and turn a small profit as well.
It’s also not always the case that Alice is the loser. If SpaceX stock jumps up again after the position closes, then Alice is making money and both parties are winners.
But then Charlie, who buys Alice's shares pays. Someone holds the bag (makes the loss) eventually.
The money being made from SpaceX is money that Musk, or whoever, engineered to be lost from every pension fund that invests in Nasdaq-100; and the Nasdaq appear to have been entirely complicit, changing the rules to make it happen.
I mean Trump stole in the traditional way, using insider dealing, and going to war to manipulate markets. I guess Musk had to one-up him by getting an index itself to forcibly extract money from investors to give to him.
Not sure what his play is at this point, he can't be shorting his own stock, can he?
You essentially purchase a share into the stock from a random person and sell it immediately on the market at the current price with a promise to sell it future value in the future.
You don't actually take the money right away but a broker holds it for you.
Say Acme is worth 100$ today and you think it'll go down to 80$ in a week. You give the broker a small betting fee. So you give him 101$, he makes the purchase and holds the "position" for you.
During that week the price could do 2 things.
The Good Scenario: Price goes down to 80$. Broker buys the stock at 80$ and pockets a nice shiny 1$. You pocket 20$.
The Bad Scenario: Price goes up to 120$. Broker buys the stock at 120$ and pockets a nice shiny 1$. You owe broker 21$.
I say 1$ but it's actually more complicated than that. Some brokers allow you to do short positions only if you have other stock with them as collateral which they would sell to pay for whatever loss you might have. Shorting is a risky business because shares could go up to infinity and you could lose everything with these positions.
When people say they're "long on this stock" means they think it'll go up in price. "short on this stock" means they think it'll godown in price. It's lingo they love to use.
So the people you make it from are from people betting the opposite as you. Another person could make the opposite bet as you and end up losing their money that you pocket.
Someone who bought and expected to make a profit, but reached a point where they hit their stop loss or just wanted to get out the trade at any cost and couldn’t bear to wait longer. Quite possible a redditor who frequents r/wallstreetbets and YOLOed in.
They're not really making any money when they close out their short position. The money came when they first opened the short position and sold the shares. When they close they just lock in how much they're going to net off the position.
I kind of get it but it's the only point when money enters the books directly from the short sale and after that they're free to do whatever they want with it.
They're selling a borrowed stock, so any buyer on the market when you open the short position is where the money comes from. Short sellers get the money immediately and then pay fees to the people they borrowed from until they close the short position.
as in, you give back _a_ share not the same share.
So you buy a bunch of shares at x price, you agree to hand them back in n days time.
You make money by selling the shares immediately and then you buy shares later at a lower price, then when you hand back the shares, the profit is the difference between ho much you sold them for, and how much you bought them back again.
The risk is, you _have_ to give the shares back usually at a fixed point in time. So if the price rises, you have to pay the difference. (there is normally a fee as well, to borrow the shares.)
Keep in mind that unlike purchasing a stock where the most amount of money you can lose is the amount of money you spend buying the stock (assuming you didn't buy it on margin), if you directly short a stock, there's technically no limit to the amount of money you could lose. If a stock goes up 1000% after you short it, then you could lose far more money than you put into it.
Hopefully you have a limit order in place. You can also do more complicated hedges with options which might cost a little bit more depending on the spread but you can guarantee your hedges.
It seems like a prudent warning in a thread explaining the very basics of short selling
Also worth mentioning you might be on the hook to buy it back at any time; after all, the person you borrowed it from may themselves wish to sell it. If widespread, this is the basis of "short squeezes" (e.g. of GameStop fame/infamy), if a lot of short sellers are trying to buy it back at the same time
3) rebuy it at the lower price (assuming you're right)
4) give it back to whomever you borrowed it from plus a consideration for letting you hold what's theirs for a bit
Whatever's left after you return the stock and pay the interest is your profit, which comes from the people who bought it from you in step 2. If you're wrong, and the price goes up, you have to replace the stock you borrowed at a higher price than you got for it and that's your loss (which could potentially be infinite, as opposed to long positions where you can only lose what you initially invested)
I wouldn't quite go that far. The fact that markets can remain irrational longer than participants can remain solvent means that participants with deeper pockets have an inherent advantage, even if they have less information. How quickly a random walk will take you to zero depends on how far above the baseline you start.
If I inherit a billion dollars tomorrow, I will have zero additional information and be no more sophisticated than I am today. But I will have deeper pockets than any retail investor and will be able to withstand market irrationality longer than them.
But we aren’t talking probability. Your claim was that deeper pockets means you are more sophisticated. That simply isn’t true. The inheritance argument is just one example to show why it isn’t. People make large amounts of money all the time in one field or another, but that doesn’t make them sophisticated investors.
When you short a stock, you borrow shares from someone who is holding that stock and their broker gets money for lending the shares and sometimes the holder of the shares lent out gets money. You sell the shares, probably to a market maker. The cash is credited to your account and held as collateral.
Sometime later, the stock has fallen and you decide to close the position. You buy back the shares with the borrowed money probably from a market maker and close your position. You give the shares you borrowed back to the lender. Your net profit is sell_price - buy_price - borrow_fees, anything left is your profit.
Stocks are not zero sum like options or futures, they also have no expiration date (unlike derivatives), it’s possible a short seller sold shares to someone who later profited, and then it’s also possible to buy the shares from someone who profited, even if you made a profit on shorting the stock.
So the answer is “other market participants” who also may have profited on their buy or sell.
you borrow shares from a permabull and immediately sell them to whatever is buying
all you owe is the number of shares you sold, the original owner doesnt care what happened as long as they get identical ones back eventually. In the meantime, you pay interest on the initial value of what you borrowed and sold
You just sit on the cash
later when the shares are cheaper, you buy shares on the open market and give them back to the person you borrowed from
whatever cash is leftover from rebuying is your profit
Interesting as some very prominent short sellers had publicly indicated they were not going to attempt this given the stock's "meme" potential and the "cult of Elon". Seems to have happened anyway. Good for those short sellers that committed. It's easy to speculate. Actually risking the bet when the market has a history of being highly irrational when it comes to Elon is another thing entirely. And the insiders haven't even been allowed to offload yet...
Also, highly related with significant discussion in the past 2 days:
https://news.ycombinator.com/item?id=48933344 - "SpaceX stock erases all its gains and slides below IPO price in intraday trading" - latimes.com | 306 points | 1 day ago | 281 comments
It's not created out of no where. It's traders saying that the stock is over priced and putting their money where their mouth is and taking on a big risk if they're wrong. They're extracting this money from folks that are putting upwards pressure on the stock saying it should be worth more. They're helping price the stock more efficiency and reducing index trader's expose to an overpriced stock e.g. retirement funds.
$9 Billion was not created, just exchanged, with some intermediary institutions and people making money for facilitating the transactions.
It's actually more like 1 trillion of value was "lost" when the stock dropped, and $9 billion was gained by some (and equivalently lost from others) for being right about the stock dropping.
Stock dropping is not literally a loss of any underlying good. It is a "assessment of how valuable something is". So when we say "omg we lost $1t in value" is not quite right. It's "we (everyone betting in the stock market) now collectively understand the value of this thing (company in this case) to be $1t less than assumed previously"
In this case, massive swings in value mean that the assessed value of a thing is very uncertain. I'd say this is extremely true for spacex, where in theory many people think it could be worth a fortune, or nothing, and no one can ever know the "true" value.
This is because there is not such thing as "absolute value" in the real world. And when it comes to things like stocks, "value" is just "hypothesized current value", which is a whole bunch of things combined: long term value of company, plus short term expected movement, even things like "who wants to own more of this this in the next few milliseconds", make up what a thing is estimated to be worth right now.
Assuming the stock market is some oracle of absolute value will make the world look insane. Seeing it as estimated value at one point in time in a very uncertain world where nothing has "true" value and all value is just relations between people and the things they want and the things they own and can exchange, is much closer to reality.
I completely understood the idea of Starlink and expected that it would be successful and useful, which it is. I've worked in data centers for decades now, and I am incredibly skeptical of the "data centers in space" sales pitch. It seems like an actual scam.
Data centers submerged in the ocean or placed in the desert seem much more promising. But I have only an enthusiast's understanding of rockets and physics, so I'm genuinely open-minded to the possibility.
Is there anyone credible who thinks this is a plausible pathway for SpaceX to make huge amounts of profit?
Repairability and depreciation are the main problems. A earth data center can be repaired, depreciated, and recycled at EoL recovering some of the costs. SpaceX datacenters are a total write off from the moment they are launched.
Isn't the problem also that because of radiation, processors in space either need to have larger feature sizes OR additional shielding / redundancy? Seems like a pretty high price to pay for slightly cheaper energy...
The Microsoft design of filling an airtight submersible structure with argon and dropping it to the bottom of the ocean floor is the alternative design - you’re not looking to do repairs but amortize the low cost of failures across the value you extract.
The biggest issue with space is not repairability but heat - when you’re in a vacuum the only way to disperse heat is through black body radiation and that’s horribly slow compared with normal mechanisms. It means you need giant physical structures whose sole job is to accept heat from the processing core and radiate it away and have so much more material that you can radiate it at the speed you generate. It’s a huge unsolved physics problem which is why everyone is skeptical.
That's actually not a concern I'd have, because hardware that has been sufficiently tested and burned in tends not to fail for a very long time.
I've done builds that ran for 5+ years with virtually no physical attention, just continual degradation as hardware is taken out of service. There's also not much money to recover from 5+ year-old hardware.
I used to run AI inference GPU servers in road vehicles, which is probably an even harsher environment than a single rocket launch, and the vibration problems are real but solvable.
SPCX is valued as an AI company; any and all issues you have with AI company valuations apply to to SPCX.
I too agree that SPCX’s space business is real and valuable, but it’s (almost completely) irrelevant here.
Because SpaceX bought xAI/Twitter.
All of the losses are from the xAI/Twitter side of the house. And Elon Musk needs a flimsy story so that no one sues him. It doesnt have to be a believable story, it just needs to be enough so that no lawyer cares to bring a case in Texas vs SpaceX and Elon for breach of fiduciary duty.
The story did its job. Elon offloaded the money losing Twitter/xAI out of his personal wealth and onto the public through SpaceX. Done and done. SpaceX is now an AI company (or contains one) and needs to perform as such.
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It's literally the same story as Tesla/Solar City. Make up bullshit about solar panel synergy with EVs and buy out his cousins failing company. Make it TSLA shareholders problem for figuring out how to make a profit from the failing company, it's no longer Kimball Musks concern since the buyout
Richard Campbell did a great talk at NDC a month about about this - https://www.youtube.com/watch?v=eo7MEPgWGic
No. It really is a scam. Everyone with understanding of the physics involved wrote so. Heat dissipation + radiation + launch cost make it a no-go.
Heat dissipation isn't as big a concern as it seems: the weight of the solar panels is significantly larger than that of the heatsinks you'd need per typical modern gpu
[delayed]
> Is there anyone credible who thinks this is a plausible pathway for SpaceX to make huge amounts of profit?
Scott Manly (who I think is credible) has a video where he goes over the logistics of SpaceX's space based data centers. He seems to think its an idea worth perusing, but its important to note that his expertise is space tech, and not business strategy.
Yeah, I have no doubt that it's possible to put GPU servers in space. The Starlink satellites are servers in space. The question is whether it's even remotely profitable to do this for AI training/inference servers.
The only way it makes sense is if you think the massive job losses due to AI will lead to people burning down datacenters on earth. An older spec'd and unmaintainable datacenter is worth way more than one in ashes.
Datacenters in Antarctica or deep ocean also fulfill that.
Let's just put it this way:
The ISS produces about 120 kilowatts of electricity.
An Nvidia Blackwell B200 GPU uses 1.2 kilowatts of electricity.
So, you would need a similar array of solar panels and radiators just to power 100 of them. You probably would need 2-3 launches for a satellite this big, and realistically, you would just make smaller satellites.
That's $4,000,000 worth of GPUs, A couple millon or more of RAM, SSDs, etc., a radiation-proof satellite housing to support all of that hardware, solar arrays, launch costs ($74M per Falcon launch), all for maintenance to be impossible and the hardware to become obsolete in a couple of years.
It's a delusion unless we invent some way to go to space for free.
SpaceX would be launching these on Starship, which has a much lower targeted launch cost.
SpaceX has accomplished spectacular things in reusable launch vehicles and space-based networking. It will soon restore the heavy launch capability that the US lost when it retired the Saturn V in the 1970s, but in an affordable and sustainable manner. SpaceX is almost single-handedly keeping the US ahead in space.
I'm bullish on SpaceX as a company in terms of technical accomplishment.
Buying SPCX would make sense at about 1/4 of its IPO price. The IPO price and subsequent rise was inflated via hype and artificial supply restriction, i.e. publicly selling just 4% of the total company ownership.
> It will soon restore the heavy launch capability
Maybe!
>but in an affordable
Maaybe!
>and sustainable
Maaaaaaybe. Gotta start gigantic scale methane production from solar or whatever first.
We sometimes get in the habit of thinking Elon, who is a Nazi, accomplishes everything he sets out to do, since he was so incredibly effective at getting EVs going and getting the Falcon 9 going. But he has plenty of misses too, like ruining the foundations of democracy, being over 12 years late and counting with self driving cars, hyperloop, the cybertruck, etc.
Insiders who have locked up stocks but still want to sell could presumably just short the stock and take out a loan secured on the stock to get the financial effects of selling, without actually selling...
I wonder if that's what's happening with ~$1T of stocks currently locked up...
If anyone knows of a broker who will let you withdraw the proceeds (cash) of a short sale, I will buy the name of the broker off you. I'll also let you know why I would pay for this (although you may already know anyway, hah).
I spent a week researching this talking to fidelity, schwab, IBKR, and Robinhood, none would allow it.
I asked an adjacent question to a broker friend who flatly replied: "Not interested in being served a Wells Notice."
Which more or less answered the question for me, even if he was being a bit hyperbolic.
That’s almost always prohibited.
Given the current administration’s recent market behavior I would not be shocked if people got away with exactly what OP described.
It's often prohibited by contract, not just law, so what the administration thinks is only part of the story.
Of course whether or not a contract is or is not enforceable as such is also a matter of law. As I understand, this IPO was unique for a variety of reasons. The fact unique terms are promulgated in a contract does not mean (at least in saner times) that they are automatically immune to regulatory scrutiny.
Insiders aren't allowed to short a stock. It's against the law.
Against corporate policy, it's against the law only if they trade on material non public information.
Once the lockup expire they'll be able to trade (sometimes there's trading window but some tech company don't have any for lower level employees), and they'll still be insiders.
What happens if you get margin called in this scenario?
You don't "short the stock" by taking a loan secured by it.
That would be a crime.
https://en.wikipedia.org/wiki/List_of_people_granted_executi...
If you make money shorting a stock, who do you make money from?
> who do you make money from?
When you own stock at a broker in a margin account, you may sign an agreement to allow the broker to lend out your stock to someone else. For lending your stock, you are entitled to a stock-borrow fee which usually is quite small say 0.25%, and paid by the borrower (short-seller). The borrower then sells the stock to someone else. At a later point, the short seller closes their position by buying it back, and returning it to you. This is roughly the mechanics of it. So, to answer your question, the short seller makes money from folks who buy high and sell low. In this specific example, the stock-borrow fee say was 5% because, the float is still low, and if the short seller borrowed at $165 after the IPO and sold it, and then bought it back at $135 and closed their position, they made money from folks who bought at $165 and sold at $135.
You can also sell in the money call options in anticipation the stock will go down. You keep the premium the call buyer pays.
But to sell the calls, you should own the stock first. Puts can be bought w/o owning the stock. Granted, the put buyer pays the premium, so you don’t get guaranteed money in your pocket like you would selling calls.
Alice holds SpaceX stock and believes it will rise. Bob believes the stock will fall. Alice and Bob reach an agreement for Alice to "lend" their SpaceX stock to Bob for a small "fee". Bob immediately sells the SpaceX stock at the current market value. After some time Bob will buy back the sold SpaceX stock at the current market value (hopefully less than Bob sold it for) and return the "borrowed" SpaceX stock to Alice thereby fulfilling the original contract.
It's also possible Bob's thesis on SpaceX could have been wrong and the shares could skyrocket. There's usually a provision in the contract for Alice to recall the shares she lent to Bob. In this case, Bob would be forced to buy SpaceX stock at the current market value and likely lose money on the overall trade.
To answer your specific question, "Who do you make money from?" It's actually not clear. Bob selling-high and buying-low doesn't necessarily mean whom Bob sells-to and whom he buys-from are on losing sides of the trade despite Bob making a profit. E.g. the buyer of Bob's short-sell could write calls and the stock could close pass the strike on expiration and turn a small profit as well.
It’s also not always the case that Alice is the loser. If SpaceX stock jumps up again after the position closes, then Alice is making money and both parties are winners.
But then Charlie, who buys Alice's shares pays. Someone holds the bag (makes the loss) eventually.
The money being made from SpaceX is money that Musk, or whoever, engineered to be lost from every pension fund that invests in Nasdaq-100; and the Nasdaq appear to have been entirely complicit, changing the rules to make it happen.
I mean Trump stole in the traditional way, using insider dealing, and going to war to manipulate markets. I guess Musk had to one-up him by getting an index itself to forcibly extract money from investors to give to him.
Not sure what his play is at this point, he can't be shorting his own stock, can he?
Well I assume Musk will just say big things publicly and manipulate the stock back to all time high and above, like he did/does with Tesla.
It's still just "buy low, sell high". You make the money from the same folks you normally would, only the order of when you buy and sell is swapped.
You essentially purchase a share into the stock from a random person and sell it immediately on the market at the current price with a promise to sell it future value in the future.
You don't actually take the money right away but a broker holds it for you.
Say Acme is worth 100$ today and you think it'll go down to 80$ in a week. You give the broker a small betting fee. So you give him 101$, he makes the purchase and holds the "position" for you.
During that week the price could do 2 things.
The Good Scenario: Price goes down to 80$. Broker buys the stock at 80$ and pockets a nice shiny 1$. You pocket 20$.
The Bad Scenario: Price goes up to 120$. Broker buys the stock at 120$ and pockets a nice shiny 1$. You owe broker 21$.
I say 1$ but it's actually more complicated than that. Some brokers allow you to do short positions only if you have other stock with them as collateral which they would sell to pay for whatever loss you might have. Shorting is a risky business because shares could go up to infinity and you could lose everything with these positions.
When people say they're "long on this stock" means they think it'll go up in price. "short on this stock" means they think it'll godown in price. It's lingo they love to use.
So the people you make it from are from people betting the opposite as you. Another person could make the opposite bet as you and end up losing their money that you pocket.
Someone who bought and expected to make a profit, but reached a point where they hit their stop loss or just wanted to get out the trade at any cost and couldn’t bear to wait longer. Quite possible a redditor who frequents r/wallstreetbets and YOLOed in.
They're not really making any money when they close out their short position. The money came when they first opened the short position and sold the shares. When they close they just lock in how much they're going to net off the position.
I don't think it makes sense to say you "made money" when you still have an open-ended liability active.
I kind of get it but it's the only point when money enters the books directly from the short sale and after that they're free to do whatever they want with it.
They're selling a borrowed stock, so any buyer on the market when you open the short position is where the money comes from. Short sellers get the money immediately and then pay fees to the people they borrowed from until they close the short position.
Normal sale - buy low, sell high, pocket the difference
Short selling - sell high, buy low, pocket the difference.
The money is coming from the same place in both cases - other people in the market.
You're missing the cost to borrow on the stock which is a daily fee to continue borrowing the stock.
The key word is "fungibility"
as in, you give back _a_ share not the same share.
So you buy a bunch of shares at x price, you agree to hand them back in n days time.
You make money by selling the shares immediately and then you buy shares later at a lower price, then when you hand back the shares, the profit is the difference between ho much you sold them for, and how much you bought them back again.
The risk is, you _have_ to give the shares back usually at a fixed point in time. So if the price rises, you have to pay the difference. (there is normally a fee as well, to borrow the shares.)
Keep in mind that unlike purchasing a stock where the most amount of money you can lose is the amount of money you spend buying the stock (assuming you didn't buy it on margin), if you directly short a stock, there's technically no limit to the amount of money you could lose. If a stock goes up 1000% after you short it, then you could lose far more money than you put into it.
You can always hedge your shorts and limit your downside. It’s not a huge issue unless you have absolutely no idea what you are doing.
Does market closing and not trading continuously affects this?
If market opens at significantly different price, you may be forced to liquidate and loose more than expected.
Hopefully you have a limit order in place. You can also do more complicated hedges with options which might cost a little bit more depending on the spread but you can guarantee your hedges.
It seems like a prudent warning in a thread explaining the very basics of short selling
Also worth mentioning you might be on the hook to buy it back at any time; after all, the person you borrowed it from may themselves wish to sell it. If widespread, this is the basis of "short squeezes" (e.g. of GameStop fame/infamy), if a lot of short sellers are trying to buy it back at the same time
Spoken like someone who's never actually done it. Hedging to limit max loss is extremely expensive.
I have done it before. How is it expensive, most brokers offer commission free trades now. It’s just another long order.
Exactly the same people you'd make money from if you sold the stock high and bought it low (ending up with the same amount of the stock)
This is actually a very good question.
The funniest and simplest answer is that you make money off yourself.
1) borrow the stock
2) sell it
3) rebuy it at the lower price (assuming you're right)
4) give it back to whomever you borrowed it from plus a consideration for letting you hold what's theirs for a bit
Whatever's left after you return the stock and pay the interest is your profit, which comes from the people who bought it from you in step 2. If you're wrong, and the price goes up, you have to replace the stock you borrowed at a higher price than you got for it and that's your loss (which could potentially be infinite, as opposed to long positions where you can only lose what you initially invested)
The person you sold it to after borrowing it, who paid for it at the elevated price.
The buyer of your short sale would lose money to you. Remember options are contracts between two parties.
Shorters are selling to willing buyers at the current fair market price. So that they may survive.
Options/futures market makers
From people who bought the stock when you started to short.
The market just redistributes wealth from less informed players to more sophisticated/informed ones.
I wouldn't quite go that far. The fact that markets can remain irrational longer than participants can remain solvent means that participants with deeper pockets have an inherent advantage, even if they have less information. How quickly a random walk will take you to zero depends on how far above the baseline you start.
> participants with deeper pockets have an inherent advantage
I do think they have deeper pockets because they are more informed/sophisticated players, so the whole argument is kind of circular.
If I inherit a billion dollars tomorrow, I will have zero additional information and be no more sophisticated than I am today. But I will have deeper pockets than any retail investor and will be able to withstand market irrationality longer than them.
If you are completely ignorant about markets, deep pocketed and inclined to risk, chances are you are going to lose it all.
Indeed. But that doesn't invalidate the point that deeper-pockets is not equivalent to a more sophisticated or better investor.
Someone who inherits a fortune and trades it on the stock market is an extremely unlikely circumstance.
But we aren’t talking probability. Your claim was that deeper pockets means you are more sophisticated. That simply isn’t true. The inheritance argument is just one example to show why it isn’t. People make large amounts of money all the time in one field or another, but that doesn’t make them sophisticated investors.
> Your claim was that deeper pockets means you are more sophisticated.
Completely wrong, my claim is that people who have deeper pockets they do so for a reason.
Not sure if you've seen the price of silver, but those spoons are going for a pretty penny these days.
When you short a stock, you borrow shares from someone who is holding that stock and their broker gets money for lending the shares and sometimes the holder of the shares lent out gets money. You sell the shares, probably to a market maker. The cash is credited to your account and held as collateral.
Sometime later, the stock has fallen and you decide to close the position. You buy back the shares with the borrowed money probably from a market maker and close your position. You give the shares you borrowed back to the lender. Your net profit is sell_price - buy_price - borrow_fees, anything left is your profit.
Stocks are not zero sum like options or futures, they also have no expiration date (unlike derivatives), it’s possible a short seller sold shares to someone who later profited, and then it’s also possible to buy the shares from someone who profited, even if you made a profit on shorting the stock.
So the answer is “other market participants” who also may have profited on their buy or sell.
you borrow shares from a permabull and immediately sell them to whatever is buying
all you owe is the number of shares you sold, the original owner doesnt care what happened as long as they get identical ones back eventually. In the meantime, you pay interest on the initial value of what you borrowed and sold
You just sit on the cash
later when the shares are cheaper, you buy shares on the open market and give them back to the person you borrowed from
whatever cash is leftover from rebuying is your profit
Interesting as some very prominent short sellers had publicly indicated they were not going to attempt this given the stock's "meme" potential and the "cult of Elon". Seems to have happened anyway. Good for those short sellers that committed. It's easy to speculate. Actually risking the bet when the market has a history of being highly irrational when it comes to Elon is another thing entirely. And the insiders haven't even been allowed to offload yet...
okay, but shorts have to take profits sooner than latter, so upside is comming
[dupe] Discussion: https://news.ycombinator.com/item?id=48938001
Also, highly related with significant discussion in the past 2 days:
https://news.ycombinator.com/item?id=48933344 - "SpaceX stock erases all its gains and slides below IPO price in intraday trading" - latimes.com | 306 points | 1 day ago | 281 comments
https://news.ycombinator.com/item?id=48920181 - "SpaceX bond worth 10% less than issue price – heading for junk bond status" - ft.com | 561 points | 2 days ago | 603 comments
it is just so weird to me that nearly $9 BILLION can be created out of nowhere for nothing
how can that be healthy for civilization
It's not created out of no where. It's traders saying that the stock is over priced and putting their money where their mouth is and taking on a big risk if they're wrong. They're extracting this money from folks that are putting upwards pressure on the stock saying it should be worth more. They're helping price the stock more efficiency and reducing index trader's expose to an overpriced stock e.g. retirement funds.
$9 Billion was not created, just exchanged, with some intermediary institutions and people making money for facilitating the transactions.
It's actually more like 1 trillion of value was "lost" when the stock dropped, and $9 billion was gained by some (and equivalently lost from others) for being right about the stock dropping.
Stock dropping is not literally a loss of any underlying good. It is a "assessment of how valuable something is". So when we say "omg we lost $1t in value" is not quite right. It's "we (everyone betting in the stock market) now collectively understand the value of this thing (company in this case) to be $1t less than assumed previously"
In this case, massive swings in value mean that the assessed value of a thing is very uncertain. I'd say this is extremely true for spacex, where in theory many people think it could be worth a fortune, or nothing, and no one can ever know the "true" value.
This is because there is not such thing as "absolute value" in the real world. And when it comes to things like stocks, "value" is just "hypothesized current value", which is a whole bunch of things combined: long term value of company, plus short term expected movement, even things like "who wants to own more of this this in the next few milliseconds", make up what a thing is estimated to be worth right now.
Assuming the stock market is some oracle of absolute value will make the world look insane. Seeing it as estimated value at one point in time in a very uncertain world where nothing has "true" value and all value is just relations between people and the things they want and the things they own and can exchange, is much closer to reality.
Those $9B are created the same way as when the stock would have risen. That's how most of the wealth in the stock market is created nowadays.
Does anyone think here shortselling should be banned?