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Friday, February 26, 2021

Why Is Short Selling Legal? [updated]

 https://youtu.be/djt9mPq_Hck

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max short should be 100% of outstanding shares [for legal limits]

seneca983 [asked why]

​ @seneca983  I assume that is how many shares are in circulation outside of the host company's control. Overall, just letting the market forces do their work. Keep in mind that GameStop shares were oversold short (more shares short than existed in circulation;) the cap of 100% assumes the maximum short selling saturation versus buyers and the host company's capacity to issues more shares (subsequent offerings for raising cash.) 

For GameStop, the optimal situation is to issue more shares if the weighted cost of capital is too high (pay off debt to improve cash flows) the shares would increase in value as there would be a better net value for the company; even if there is a new project such as online storefront for gaming. 

Why? Do you have a better formula?  

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