Naked shorts, i'm not talking the nice kind of naked shorts, not the kind that uh fine, gentlemen would wear strolling around in their house as as should be done, but the malicious nefarious and illegal kind. There are many people out there, guys friends, family fellow gorillas, that uh would mock and essentially say look. This is a conspiracy theory. This is not something that happens.

It would take way too many parties to coordinate something like that, such as you can see right here with our favorite man on planet earth, charles gasparino, who says uh the father of the naked shorting conspiracy. Patrick byrne has been noticeably silent on it now and funnily enough. This is something i mentioned in yesterday's video, but i want to dive into this more so because it really is significant information more so than i think people realize uh. There's data that came out essentially saying look: this is a company that was in fact naked short soul.

This is the ceo right here uh. If i butcher his name, i apologize. I went to college for nutrition uh. We got a's, throwing our name on the test.

Right, it's pretty pretty straightforward stuff, but yeah yeah, oh off to a bad start, says here. Preliminary data on illegal naked shirts selling is in about 7 million shares as of october 15th. This is in addition to the 8.1 million shares, officially short, as reported by the nasdaq. Now, if you're a new viewer, you don't know what they can short selling is i'll walk you through the process and put in a very simple way, but essentially what this is saying is that 8.1 million shares were officially registered as short by the nasdaq there's.

An additional seven million that we're not accounted for, meaning that they should not be there and in and of itself that's pretty bad. That should not be something that exists for a prolonged period of time, and i wanted to take the opportunity to talk about it today, because that is uh important stuff to be able to mention so uh. What i want to talk about the most important thing is: how can something like this happen, because, when you think of naked short selling in and of itself, you might just think to yourself bad hedge fund, bad person right, they just decide screw this company. Let's dig it into the ground, but you can't be that straightforward as to sort of just create shares out of thin air and send them into the market shorted and expect that you're not going to get caught right.

Because a lot of this stuff is done via computers via algorithms and it's it's locked right. That sort of stuff can be found by investigating bodies such as the sec down the road. If there was an investigation to be done now, obviously the sec is kind of. I shouldn't say: they're not very proactive, more reactive than anything regarding this sort of situation, but think of this in a much larger sort of way.

I broke this down into sort of three categories here and i'm gon na be talking explicitly about uh shares options which are contracts that are written up by market makers, essentially liquidity or money providers within the stock market and then actual naked short selling in and of Itself so right here in this circle, what do you have right? This is a hypothetical stock. This in no way is a representation of anything. This is a theoretical sort of situation based on the things that present themselves in the stock market. Let's say you have 100 million share float.

What that essentially means is there's 100 million shares of total stock that exists on a day-to-day basis within the stock market, as long as the company does not add additional shares to that overall count. So if somebody was to own 100 million shares, they didn't sell a single one of those that mean there's nothing available to trade right with that being said, hypothetically speaking, let's say: retail owns 45 million shares, toots or institutions. The big boys, hedge funds, banks, whatever they own 25 million shares and then there's 25 million shares shorted into the market. I've added a small sliver right here for market makers as well, and i've been thinking of that a little bit more, but essentially think of this.

As uh their own internalized portfolio and holdings in that stock, anticipating things that could happen right, maybe a potential buyer - maybe a call option, runs in the money as i'm going to get into here in a little bit right. They just have their own liquidity in that, given security, so that they can handle that in any sort of way that they'd like to kind of this uh. This small circle over here is naked short selling, and why i mentioned earlier in the video, it's not super easy to get away with something like this is because you have to have some sort of reason behind uh naked shorting, a stock. If you're going to do it now, it's not technically illegal unless it's malicious or nefarious, and what i would define that as personally, is, if you do not have the supply.

For example, let's say that there is uh. You know you've got a market maker right here or a hedge fund who says okay uh. I i know that i have five million shares returning, but it's not until tomorrow. So what i'm going to do for now is naked short, 5 million shares into the market.

This being the market right here, anticipating that 5 million shares will come back and i will essentially wipe these naked shorts out of the market right. It's essentially an exchange, but the timeliness right hanging on to naked shorts for a prolonged period of time. That to me is nefarious because it identifies you had no intention the least bit of actually uh getting rid of those right and they circulate in the market and they can dilute stock price supply and demand. We can talk about that a little more, but i want to get into where i think the majority of the problem is and where the problem was for this specific security which was ader, and that is in derivatives now.

Why is this important right? Well, if you were to look at aider specifically, this is a lower float stock right. It's got about uh 30-ish million share float, as you can see right here by weeble. This is 29.3 million. Total share float for the stock and with that small of a float and with how heavily the stock was traded on how heavy the short interest was.

This stock had a 30 40 short interest uh. The last time that i checked it's very easy for things to get out of hand very quickly. If there's momentum and with that being said, there was heavy derivatives trading during this peak period right here when it ran out to about 19.90. So why is this important right? Why does it matter that uh there is heavy derivatives activity? Well, it's because this is a way where things can get out of hand for not only market makers but hedge funds as well.

So here's a hypothetical situation with a hypothetical stock there's 100 million share float and all 100 million shares are accounted for. These are traded on a day-to-day basis. That's how the stock decides what it wants to do on a given day, throwing derivatives all of a sudden right. Let's say that you have 300 000 total calls in the market, as is very possible with a stock that has such heavy derivatives activity, essentially, contracts that are written up by market makers.

Saying i think a stock is going to go up to this or i think a stock is going to go down to this put very simply right: 300. 000 worth of 300 000 contracts worth of calls equivalent to 30 million shares. One contract is worth 100 shares. You multiply 300 000 by 100.

You get 30 million. In the same way, we've got 100 000 total puts, or 10 million shares worth if those were to all run in the money. Now, here's a hypothetical situation right, let's say that the cap for these 300 000 total call option contracts is 10 right. Let's say it's 10 bucks right here and all of a sudden stock price goes way above that spike's up to 15..

What do you have all of a sudden right? You've got 300 000 total contracts or 30 million shares worth of contracts that are all in the money simultaneously, and this is a very rare occurrence. It's not something you see frequently, but it does happen. I've seen it in the last uh 10 11 months with a couple given stocks right, eight or being one of them, iron t being another amc, gamestop, very obvious bed bath and beyond blackberry nokia, right, there's, there's a ton of stocks in which this is very very Doable and possible to have happened now. The problem here is this: in this hypothetical situation: if a market maker has five million shares on hand, but 30 million shares all of a sudden run in the money, they have to prepare for the chance of all 300 000 of these contracts getting exercised, and they Don't have that on hand, they've got 5 million shares which can absolutely skyrocket the price up and in a situation where this can happen, you can have two sort of parties at fault.

Here. Market makers who wrote up these contracts in the first place have to hedge against these contracts right either. They they have to manage their exposure for the long and the short side, depending on which way the stock decides to go. So they can buy stock as well as short the stock, because they have to manage that risk and that exposure.

They play the game of break even right, they're trying to essentially manage volatility when that volatility comes to be so, market makers can write up naked shorted shares into the market if they don't have the supply saying look. This is a fair to deliver or look uh. We anticipate shares will return, so we can make this happen, and sometimes they just don't get delivered in the case of something like this right. This is my speculation.

Based on what i watched happen, i choked on my spit when the stock ran up to 19. Back here right back on september 13th, that's one opportunity: that's one option! Another one's this hedge funds can write up naked shorts and this is a less uh, less likely and more complicated sort of situation. Because the relationship between a hedge fund has to go through a market maker, at least to some extent or some sort of broker, which then goes to a market maker, so it has to go by a lot of people. You have to have a situation where there's multiple parties at fault, which ultimately comes back to market makers who oversee all these transactions and all the liquidity in the first place.

So what do i think caused this? What is what could have really caused that seven million shares sold short, which doesn't sound like a big deal right, but that is a huge deal. It's a huge deal because this company has a 30 million share, float 29 million, which means you're increasing the overall share. Count of this stock significantly nearly 30 percent, nearly a third which dilutes stock price. If you have more shares circulating in a float right, what ends up happening lowers the stock price.

It just does it's supply and demand if all of a sudden, you have this huge influx of supply right supply. This goes through the roof. Inversely demand will just go down. That's the relationship, because it's selling pressure that in and of itself, is selling pressure.

Think of the car market right think of the used car market right now. What do you see right? Car market uh, there's a shortage in terms of chip. There's a there's, a supply chain issue. You just see that there's really not a lot of opportunity to get new cars.

I i i can speak on this because my my roommate alpaca tried buying a subaru. It took him forever to get that new subaru right, whatever that causes used cars price to go through the roof, because there's limited supply in other markets, which increases demand in the same way with this right, increasing supply, you're gon na lower demand, it synthetically, lowers stock Price eighter got, i mean it just got anally fisted and it's right there in front of your faces, and i think this is one of many stocks where a situation like this happens to me, it's all hidden, it's all hidden in this, where all the malpractice takes Place is in unregulated derivatives markets, right market makers, options, market makers being able to write up more contracts than they really should, because they can write up an infinite amount of contracts if they so desire, as long as they think they can deliver on it and obviously - And so in some situations these guys are just making up as they go they're sitting there like. Oh, you know what you know what jim over here. He.

This looks like that. This looks like a gim me right, he's playing a freaking 20 call option on on a stock. That's at five bucks yeah. Why wouldn't i take that free premium and most of the time they're gon na hit that, but sometimes they do not.

Sometimes they get clapped, sometimes they get, they get woken up by being pissed on, and market makers get stuck in a situation where they have no choice. But to do things like this or like this, seven million shares right, it's crazy stuff, and these are things that retail investors and apes have been banging their head against the wall about, like literally months a year almost a year guys and it's there it's in front Of your faces, these are theories that have literally come true that naked short selling does take place. The process behind that, i think, is important to understand and the parties involved, i think, are also important to understand because there are a couple different ways that can happen, but i think the primary problem, where there's the most opportunity for friction and uh bad decision making Comes down to the guys at the top who handle the money market makers, they oversee transactions outside of clearinghouses. But that's that's entirely separate right.

I'm not going to get too much into that, but they oversee this stuff, which means they have to allow it to happen. And uh it's it's some wild stuff. So, what's the takeaway right speaking out against the stuff speaking about it, having these conversations and trying to discuss how this can happen in the first place, raises the opportunity for other people out there to see this and to affect change, is being able to recognize and Get the word out and make noise against stuff like this because, true, maybe you have no, no, no, no, no skin in the game with hater! No! No! No! No! No! No! No! I know i don't right, but it still affects people's lives. It affects the company.

It affects the people that work for the company. It affects the people who invested in the company. It's theft, it's straight up, theft, it's illegal! It's not right! It's up! I'm talking about it! It's a start! That's what i've got for you guys catch on the next one: much lovely taps, peace.