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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. Game Stop investors are

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Speaker 1: once again squeezing short sellers. This stock options expert explains

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Speaker 1: how it works and why more margin calls may not

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Speaker 1: put them off.

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Speaker 2: I think in the game stock original thing, it was

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Speaker 2: justtic get to the edge funds. Definitely. It's a zero

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Speaker 2: sum game winner. There's a loser, and prices will go

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Speaker 2: up and down, and you can make money on the

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Speaker 2: downside as much as you can on the outside.

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Speaker 1: The Game Stop saga that caused the mother of all

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Speaker 1: short squeezes in twenty twenty one is back in action.

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Speaker 1: The stock, which is a US video game retailer, jumped

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Speaker 1: last month after the Roaring Kiddy posted on his Twitter

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Speaker 1: account for the first time in a few years, signaling

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Speaker 1: he was back in the game.

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Speaker 2: I like the stock.

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Speaker 1: Retail investors followed Keith Gill last time, piling into game

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Speaker 1: Stop stock as a means to stick it to the

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Speaker 1: hedge funds that were shorting the company's stock. While some

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Speaker 1: investors made big money, some lost significant amounts, but none

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Speaker 1: more than the short sellers who spent billions covering their bets.

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Speaker 1: Malvin Capital didn't survive it. The latest squeeze caused short

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Speaker 1: sellers to lose almost one billion dollars in cover. The

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Speaker 1: short interest on game Stop is now around twenty five percent,

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Speaker 1: much higher than the average SMP five hundred short interest

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Speaker 1: of one point eight percent. Other stocks with high short

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Speaker 1: interest include some Power Corp, Beyond Meat, and some pharmaceutical companies.

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Speaker 1: Short selling is a type of derivative. Greg Bolland is

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Speaker 1: an expert in it. In this interview, he explains how

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Speaker 1: calls and puts work and why a game Stop squeeze

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Speaker 1: is not enough to put the short sellers off. Well, Greg,

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Speaker 1: thank you so much for doing this and for having

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Speaker 1: us then appreciate it.

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Speaker 2: Yeah, thank you, thanks for having me.

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Speaker 1: Let's start by talking about what was the mother of

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Speaker 1: all short squeezes and we're seeing some of it again

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Speaker 1: game Stop. Explain to me what's happening with the short

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Speaker 1: selling interest in that stock at the moment.

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Speaker 2: At the moment. Okay, so game stock is as a

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Speaker 2: stock as we well know from our Netflix TV and

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Speaker 2: show that in twenty nineteen, retail investors stood up against

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Speaker 2: big fund managers who were shorting Game stock. So the

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Speaker 2: big institutional investors thought that the stock would fall and

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Speaker 2: therefore short of the stock, and the retail investors, through

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Speaker 2: Reddit and various forums, got together and started buying the stock,

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Speaker 2: which pushed the price up. So it was called a

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Speaker 2: short squeeze. Because the big funds, the hedge funds, they

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Speaker 2: were short the market, they will make money of them

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Speaker 2: market falls. Of course, the market went up, and therefore

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Speaker 2: that to pay margin the losses they go margin court margin,

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Speaker 2: called short squeeze, and therefore they had to get out

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Speaker 2: of their position by buying them back at at a

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Speaker 2: loss and therefore owed lots of money. And the retail

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Speaker 2: investors on the other side, some of them made a

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Speaker 2: lot of money, but some of them lost a lot

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Speaker 2: of money as well. And what's happened recently is that

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Speaker 2: there's been a post on x where it's just got

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Speaker 2: Game stock and the person allegedly who originally did the

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Speaker 2: idea of going along the stock, and that's been back

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Speaker 2: in the market, and so Game stock again is to

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Speaker 2: the foe, and the share prices dropped is jumped from

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Speaker 2: the sort of five six dollars to sixty five dollars

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Speaker 2: and back down again, and short interest in that is

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Speaker 2: around twenty five percent at the moment. So for every

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Speaker 2: share that's on a shoe, twenty five percent of them

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Speaker 2: being sold short. And that's compared to the average, which

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Speaker 2: is about one point eight percent, So still a big amount,

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Speaker 2: but not in the hundreds like it was last time.

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Speaker 2: It's around twenty five percent short interest in game stock

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Speaker 2: at the moment.

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Speaker 1: How are we here again with Game Stop? Did the

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Speaker 1: hedge funds not learn anything last time? Given they're still

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Speaker 1: shorting it to around twenty percent, obviously less than the

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Speaker 1: around one hundred percent last time, but it still a lot.

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Speaker 2: And I don't think it's necessarily hedge funds. It could

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Speaker 2: be retail investors who have shortened it. There's no reason

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Speaker 2: why a retail investor in this day and age, through

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Speaker 2: a platform like the one we offer, can't borrow stock

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Speaker 2: from us as a broker and then sell that stock

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Speaker 2: into the market. They just need to have enough cash

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Speaker 2: in their account to cover the initial margin, which is

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Speaker 2: for game stock around ninety percent. I mean for most

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Speaker 2: stocks around thirty thirty five percent. So you have to

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Speaker 2: say shortening a stock at one hundred dollars, you're hoping

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Speaker 2: it's going to zero. You've got to have thirty five

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Speaker 2: dollars in your account to cover the cash position. And

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Speaker 2: if the stock price goes up by five percent, then

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Speaker 2: you've got to top up with more money, so a

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Speaker 2: margin call and if you don't have enough money and

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Speaker 2: an automated system will just automatically close you in either.

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Speaker 1: This is the reason I wanted to come in and

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Speaker 1: chat to you because your knowledge on by short squeezing,

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Speaker 1: short selling and derivatives as a whole is kind of

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Speaker 1: second in this market.

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Speaker 2: Thank you.

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Speaker 1: Can you explain to me the type of derivative that

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Speaker 1: leads to a game stop short squeeze and how perhaps

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Speaker 1: differ differs to other options.

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Speaker 2: Okay, so it's basically the same. So in the United

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Speaker 2: States particularly that there is stock options on individual stocks

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Speaker 2: whereby you have the right to buy, which called a

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Speaker 2: call option you're calling the stock to you, or the

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Speaker 2: right to sell, where you're putting the stock to someone

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Speaker 2: else put and each one is on one hundred shares

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Speaker 2: and they are listed on most stocks in the market.

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Speaker 2: So the so the game stock is just another stock

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Speaker 2: that has options on it. But in this case, because

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Speaker 2: you can leverage and buy a call option hoping that

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Speaker 2: the price goes to the moon, and if it doesn't,

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Speaker 2: you only lost a small premium. A lot of people

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Speaker 2: will enter into stock options hoping that the price rallies

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Speaker 2: away in terms of buying a call option, and the

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Speaker 2: same with a put if they think you read it.

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Speaker 2: If a gamestock got up to sixty five dollars recently

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Speaker 2: and it was three or four before that, and you

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Speaker 2: shorted it, either by shorting it or by buying a

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Speaker 2: put option, then you make money as a price falls away.

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Speaker 1: So the money you make is that margin is.

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Speaker 2: Dollar for dollar movement of the stock. So say you

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Speaker 2: short it at sixty five dollars and you paid margin,

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Speaker 2: which is around and so we'll say say it's one

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Speaker 2: hundred dollars stock and you've paid one hundred dollars in margin.

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Speaker 2: As a price falls you will you will make money.

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Speaker 2: But if the price rises, you have to top up

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Speaker 2: your hundred dollars to one hundred and ten dollars and

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Speaker 2: twenty dollars or whatever it might be. So it's it's

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Speaker 2: a zero sum game. Every winner there's a loser, and

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Speaker 2: prices will go up and down, and you can make

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Speaker 2: money on the downside as much as you can on

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Speaker 2: the outside. And people in the markets don't understand that.

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Speaker 2: Everyone thinks you just buy shares. There's no reason why

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Speaker 2: you can't short sell them, buy a put option on them,

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Speaker 2: or sell a call option on them.

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Speaker 1: So it's a fifty to fifty game effectively winners and losers.

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Speaker 1: It's kind of like playing red and black at a casino.

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Speaker 2: Correct, Well, we don't like to compare with casinos because

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Speaker 2: the house mostly wins, but the market usually wins or

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Speaker 2: it wins in this situation, and so for every winner

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Speaker 2: there's a there's a loser, or every buyer there's a seller,

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Speaker 2: and therefore it's a zero sum game, whereas in a casino,

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Speaker 2: not necessarily everyone who's on red and everyone's on black,

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Speaker 2: it's necessarily going to make money because the house is

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Speaker 2: there to make money on the way through a.

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Speaker 1: Stock options the most popular or at least most commonly

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Speaker 1: understood and used type of derivative in equity markets.

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Speaker 2: Yes, in terms of retail investors, because each option is

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Speaker 2: on one hundred shares, and so even stocks like in Video,

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Speaker 2: which is currently eleven hundred dollars eleven hundred dollars, put

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Speaker 2: option or call option is still going to cost you

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Speaker 2: forty or fifty US dollars. It's not a huge amount

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Speaker 2: compared to the eleven hundred and fifty dollars stock price.

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Speaker 2: Whereas a futures contract or an option on a on

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Speaker 2: an index such as the S and P five hundred,

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Speaker 2: the futures contract is fifty dollars a point, and so

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Speaker 2: you're controlling something which is worth far more, and that

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Speaker 2: one is up. You take all the upside, but you

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Speaker 2: also take all the downside, whereas a call option if

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Speaker 2: you're buying, or put option if you're if a buyer,

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Speaker 2: the risk is just the premium that you're paying.

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Speaker 1: Stock options are just one of four types of derivatives.

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Speaker 1: There's also of futures and hedging. Can you explain those

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Speaker 1: other ones?

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Speaker 2: Okay, yeah, sure. So in terms of stock, options are

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Speaker 2: typically traded on an exchange, So the predominant one in

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Speaker 2: the United States is either NASDAK or Chicago Board Options Exchange.

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Speaker 2: It's been around since the seventies. And then futures contracts

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Speaker 2: that typically trade are on exchange. You've got things like

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Speaker 2: rosen concentrated orange juice, which is in the Trading Places

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Speaker 2: film with Eddie Murphy in the seventies eighties. Of course,

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Speaker 2: gold doesn't grow on trees like oranges, clear so far,

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Speaker 2: and that was an example of someone buying and selling

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Speaker 2: futures contracts is also on oil, gold, silver, et cetera.

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Speaker 2: So commodity trading is where these products came about because

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Speaker 2: farmers wanted to hedge their corn and wheat price risk.

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Speaker 2: They came to market with their wheat harvest time, lots

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Speaker 2: of supply, not enough demand, so their price is dropped.

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Speaker 2: Why not supply ahead of time, but with a futures

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Speaker 2: contract and take advantage of the high price ahead of time.

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Speaker 2: So futures have been there for probably nearly two hundred

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Speaker 2: years where people have hedged the risk of commodities. So

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Speaker 2: those are the two exchange traded products futures and options.

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Speaker 2: And there's two others that are predominant in the financial markets.

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Speaker 2: One is called a swap and they typically are on

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Speaker 2: foreign exchange or on interest rates, where a financial institution

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Speaker 2: or a bank of some sort is creating a swap

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Speaker 2: product which are then offering to a fund manager or

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Speaker 2: who if it might be, and it's just an exchange

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Speaker 2: or swap of cash flows in and out depending on

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Speaker 2: whether the market has moved upwards or downwards. The fourth

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Speaker 2: type of product is a forward contract, which is very

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Speaker 2: similar to the payoff of a futures contract, and the

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Speaker 2: fords in New Zealand are typically again issued by a

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Speaker 2: bank to a corporate who may want to lock in

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Speaker 2: their ford foreign exchange or forward interest rate risk and

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Speaker 2: lock in today's price for some future date so they

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Speaker 2: you know, the farmers producing milk and from terrables to

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Speaker 2: sell milk in US dollars, it's paying the farmer in

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Speaker 2: New Zealand dollars and therefore it needs to hedge its

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Speaker 2: US dollar risk in some way by entering into fords

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Speaker 2: or swaps to cover that forward risk of selling US

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Speaker 2: dollars back to the banks to buy KYI dollars to

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Speaker 2: pay for the farmers to pay for their milk.

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Speaker 1: What does regulation look like for all of these different

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Speaker 1: types of derivatives? Is short selling treated differently to something

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Speaker 1: like a Ford contract?

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Speaker 2: A Ford contract, so, in New Zealand, under the regulation

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Speaker 2: under Financial Markets Conduct Act, anyone who is an issuer

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Speaker 2: of a derivative issuing it over the counter derivative rather

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Speaker 2: than an exchange product has to have a derivatives issuer license.

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Speaker 2: If you are offering futures of exchange trader or options

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Speaker 2: that exchange traded, you don't need a derivatives license because

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Speaker 2: the issuer is the exchange, not the broker. So the

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Speaker 2: issuer has to have a has a has a derivatives license.

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Speaker 2: When you're issuing ford products, it's it's arguable that you

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Speaker 2: should also be a derivatives issue. And many of the

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Speaker 2: banks have become derivatives issuers because they are issuing an

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Speaker 2: over the counter product such as a swap or forward

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Speaker 2: to individual corporates. So and in terms of you know,

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Speaker 2: in terms of other regulation that the all regulators around

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Speaker 2: the world are looking at things like cryptocurrency short selling,

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Speaker 2: all these types of things all the time. Just make

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Speaker 2: sure there's not market manipulation and the manipulation of the

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Speaker 2: market in terms of price of a particular product. So

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Speaker 2: you know, there's debate whether game stock thing is again

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Speaker 2: a former market manipulation where someone's pushed the price up

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Speaker 2: and then short sold and made a lot of money

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Speaker 2: as the market's collapsed again.

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Speaker 1: So one thing that has led to not only the

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Speaker 1: game stop short squeeze, but the Trump Media Company as well.

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Speaker 1: Is the use of social media and also the democratization

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Speaker 1: of investing making it easier and more accessible for retail investors.

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Speaker 1: We've seen that in stock options through platforms like You're

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Speaker 1: on it here at Tiger Brokers. Where do you for

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Speaker 1: see that? Perhaps going in the other forms of derivatives,

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Speaker 1: will we see more democratization there eth it?

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Speaker 2: I think so. But in terms of the over the

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Speaker 2: counter derivative, it's really the bank is matching what the

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Speaker 2: corporate wants. So if a bank, if the corporates has

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Speaker 2: to is receiving three hundred and fifty two hundred US dollars,

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Speaker 2: the bank can enter and affward with that. Whereas a

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Speaker 2: futures contract KI versus US is on one hundred thousand

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Speaker 2: dollars lot, so you had to buy one lot or

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Speaker 2: three lots if by four you're over hedging. So over

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Speaker 2: the counter products typically will be structured to to what

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Speaker 2: the actual client needs, whereas exchange traded because they are

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Speaker 2: all standardized, everyone knows what they're getting and therefore they're

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Speaker 2: very tradable, and it draws in hedges and speculators and

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Speaker 2: people who are looking to discover price ahead of time.

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Speaker 2: In terms of these products.

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Speaker 1: Anybody wanting to better understand derivatives as a whole, but

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Speaker 1: also specifically stock options and shorten what should they know?

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Speaker 2: They should work out that these are complex that these

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Speaker 2: are complex markets and complex products, so you need to

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Speaker 2: understand and learn what they are and if you are

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Speaker 2: going to start trading in these sorts of products. Systems

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Speaker 2: like ours have a demo account, so you can get

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Speaker 2: a funny money if you like, of one hundred thousand

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Speaker 2: US dollars. You can go in and practice your strategy

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Speaker 2: versus live market and do that over a month or

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Speaker 2: two months or whatever it might be. Learn how the

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Speaker 2: market works and then invest. Also attend courses. There's lots

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Speaker 2: of online courses these days. Lots of people in the

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Speaker 2: exchanges themselves put out a lot of information around what

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Speaker 2: these products are and how they work, so learn the product.

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Speaker 2: Next thing is it's really risk management. Do you how

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Speaker 2: much money are you prepared to lose? These markets are

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Speaker 2: very can be very volatile, so you need to understand

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Speaker 2: what is your own thought process and psychology in terms

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Speaker 2: of losing money, because you're not always going to make money,

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Speaker 2: So understand risk and risk management and don't go in

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Speaker 2: too fast, too hard. Don't put a thousand dollars on

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Speaker 2: red straight away. Go in and buy in a product

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Speaker 2: that you understand, so we can talk about gold futures

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Speaker 2: or goal ETFs or whatever. Do you actually understand the

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Speaker 2: underlying market? Do you understand what Frozen Concentrated Introducers has

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Speaker 2: produced in Florida and traded in New York? Do you

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Speaker 2: understand what you know in video is as a company,

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Speaker 2: you understand what game stock is and how the price

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Speaker 2: can move. So understand the actual individual underlying product first

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Speaker 2: and have that base so that then you can make

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Speaker 2: an informed decision of where you think that price is

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Speaker 2: going to move or the underlying and then trade derivatives

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Speaker 2: around that underlying product.

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Speaker 1: This is interesting because it seems like we are starting

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Speaker 1: to see a disconnect between the actual underlying asset and

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Speaker 1: the price action. Do you see a disconnect.

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Speaker 2: Set well in game stock? Clearly there is you know,

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Speaker 2: the value of the asset has been over over hyped

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Speaker 2: and therefore the price has gone up, or people thinking

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Speaker 2: that the price is going to go to zero. We're

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Speaker 2: clearly the market still thinks that the stock, the stock

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Speaker 2: has got some value.

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Speaker 1: And Kenny would say that it does, yeah.

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Speaker 2: But it doesn't have a value fifty times above where

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Speaker 2: it is at the moment. And the answer is the

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Speaker 2: market is always right. You know, people think the stock

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Speaker 2: price will be five or six dollars, not sixty five dollars.

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Speaker 2: So there is a disconnect where social media is pushing

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Speaker 2: and manipulating the price of the underlying more than what

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Speaker 2: necessarily should be in bigger assets. So think of the

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Speaker 2: apples or the Amazons. In these sorts of stocks or gold,

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Speaker 2: it's a lot harder to move the price because it's

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Speaker 2: so many more buyers and sellers in the market, whereas

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Speaker 2: in the small stock site, game stock and various others

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Speaker 2: sometimes you can call them penny stocks, the price volatility

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Speaker 2: can be a lot higher, and therefore the opportunity to

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Speaker 2: speculate can be a lot higher as well. So in

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Speaker 2: terms of the answer is it does disconnect, but it

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Speaker 2: depends on the asset. If it's a very highly valued

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Speaker 2: and sought after asset, it's less likely to be manipulated

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Speaker 2: and price whereas smaller stocks there's more risks. So therefore

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Speaker 2: the lesson for really is going to stocks that you

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Speaker 2: actually know and think about, rather than what someone on

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Speaker 2: social media has told you to buy ourselves.

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Speaker 1: Where do you see this ending. Do you see investors

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Speaker 1: eventually not using Reddit for investing advice because too many

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Speaker 1: of them will get burned eventually, or do you think

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Speaker 1: that this is a real shift in retail investors wanting

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Speaker 1: to stick it to the hedges.

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Speaker 2: I think in the game stock original thing it was

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Speaker 2: to stick it to the edge funds definitely, and that

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Speaker 2: they you know, why should a hedge fund make money

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Speaker 2: out of something going to zero? Why you know companies

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Speaker 2: going to go bust? They're if I'm going to make

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Speaker 2: money out of it, and the retail investors stood up

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Speaker 2: against that. But in terms of long term I think

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Speaker 2: there's always been people talk about stocks, you know. I

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Speaker 2: remember in the eighties nineties, whyone talked about Fletcher FROs

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Speaker 2: and various stocks, and everyone was all the retail investors

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Speaker 2: were buying. There's a lot of debate, a lot of

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Speaker 2: thought in the financial markets. Those have been in markets

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Speaker 2: a long time. When retail investors talk about it, sell

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Speaker 2: it because there's no longer any upside because the retail

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Speaker 2: investors are all now jumping in and the price might

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Speaker 2: move up a little bit more, but more experienced investors

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Speaker 2: probably will short the market when more retail investors are

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Speaker 2: talking about things, and that's happened for years, not just

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Speaker 2: on social media, but in markets are old as well.

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Speaker 1: Bottom line, the short sellers aren't going anywhere, are they.

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Speaker 2: They will be there, they will make money, and markets

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Speaker 2: are better for having people who want to buy and

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Speaker 2: people who want to sell. If you want to buy

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Speaker 2: in Nvidia at a price, you need a seller on

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Speaker 2: the other side. So whether that person is shorting or

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Speaker 2: whether they are already bought in VideA a few years

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Speaker 2: ago at fifty dollars is now eleven und they are

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Speaker 2: still there. So you need buyers and sellers in the market.

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Speaker 2: How they get there either borrowing money to buy the

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Speaker 2: stock so doing it on margin, on leverage, or borrowing

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Speaker 2: the stock from someone else and shorting it. There's still

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Speaker 2: market forces of buyers and sellers getting together to buy

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Speaker 2: and sell particular assets. And that's what markets are about.

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Speaker 1: Yes, they are. Thank you so much. You're thanks fascinating

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Speaker 2: Thank you, thank you