Hi everyone, bob here.
Alright, buckle up apes, because we’re about to break down exactly what just happened with these GME bonds and why the market just took a trip to Fuckeryville. If you’ve been staring at your screen wondering why GME nuked itself into oblivion post-announcement (where we fucking CRUSHED earnings, i might add), congrats!! you just witnessed the big brain convertible bond arbitrage play in action. Let’s talk about how they did it, what their positioning looks like now, and where this whole thing could go next...
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The Setup: Convertible Bonds & The Gamma Grind
So, GME drops a $1.3 billion convertible bond offering at zero percent interest (because why not). The catch? These bonds can be converted to shares in 5 years at $29.85. That’s our magic number.
At the time of the announcement, GME was trading at $29.80. Two days later? The stock gets absolutely nuked to $21.16 on 96.73 million shares of volume. Why? Because the arbitrage funds who bought the bonds just shorted the absolute fuck out of the stock to hedge their position.
https://preview.redd.it/475bse76hpre1.png?width=870&format=png&auto=webp&s=7e0cc8404acbdc7b25cc104d7134e7d4d25c7836
Let’s break it down ape-friendly:
- They bought the bonds, which give them the right to convert into GME stock at $29.85 in 5 years.
- To hedge their risk, they shorted GME immediately because if you’re getting a synthetic long exposure through the bond, you neutralize it by shorting the common shares.... and if you're
- The volume was 10x the 30-day average, meaning this was a full-scale algo-driven gamma hunt.
How Many Shares Did They Short?
Here’s the math.
- Convertible bonds don’t trade 1:1 like normal stocks.
- When issued, they usually have a 40-50% delta, meaning traders hedge by shorting 40-50% of the equivalent shares they’d get from conversion.
- With $1.3B in bonds, that’s roughly 43.6M shares or roughly 10% of outstanding (1.3B ÷ 29.85) that could be converted.... 👀44m shares traded in a $1 range on Friday... and a lot of crabbing after the big drop to that range the day before...
- If they hedged at 40-50% delta, that means they shorted 17.4M - 21.8M shares immediately... likely naked AF... until they get the bond. they are getting the bond right?... right?
Now, let’s look at what the stock actually did:
- Day 1: 96.73M shares traded, price nukes from $29.80 → $21.16.
- Day 2: 44M shares traded, but price stabilizes in a tight range between $21.70 - $22.79.
That’s pure gamma trading action!!! We're so back baby! They shorted hard on day one, then started playing the gamma game, scalping shares in that $21-$22 range, covering and re-shorting as needed.
These funds aren’t betting on GME going up or down. They’re here for one thing only: volatility.
Every time GME rips, they short more to maintain delta neutrality. Every time GME dumps, they buy back shares to cover and ride the wave back up. This creates a massive cycle of artificial volatility, where they’re making money without actually giving a shit about the company. Where do they make their cash? In the swings. And they don't give a flying fuck if it is range bound or up or down over the long term, just that it swings wildly along the way. My bet, given what we've seen in MSTR, and the health of GME, we will see a significant rise in both price and volatility over the next 3 years.... here's what MSTR did when they started playing this game.
https://preview.redd.it/0usxoj19hpre1.png?width=1582&format=png&auto=webp&s=b8d5f876190ffb9201bb9368fb70c305c943e081
So What Happens Next?
If Volatility Stays High (100%+ IV)
- CB traders keep farming, grinding the stock in a high-volatility range.
- Expect more fake-outs, more random dumps, and occasional “surprise” rips that get sold into.
If Volatility Dies Off
- If the stock stops moving as much, they start unwinding their short hedges, which could cause an upside squeeze back toward $29.85. ( I can't find the clip, but RK himself said "all shorts are eventually buyers")...
- This happens when the game stops being worth playing.
The “Oops, We Shorted Too Much” Scenario
- If retail and other funds start aggressively buying and forcing CB traders to unwind their shorts, we could see a violent short-covering rally 🚀.
- But remember, these guys are NOT idiots... they will reposition before it gets out of hand.
There's also 2 sides to every trade...
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I posted on the 27th to try to get the word out about what i was seeing... it didnt get much attention, but that's ok. Sharing it here again because it's relevant. If anyone noticed the far OTM volume being placed there, and thought it was the bond holders... i'd beg to differ... I think it's the volatility shorts (and the actual "hedgies" we've been battling all along. It was reminiscent for my old ass DOOMP DD from mid-2021.. which just became relevant again with the resurgence of volatilty hedging through options. Zinko83 (account deleted) had some fucking fantastic DD on variance swaps as did mauer back in the day (linked in my post yesterday)... you should read up on those as they are relevant again for the future of GME (at least as long as the vol players are back). Also, there's some great fundamentals in this old DD of mine that just became relevant again - hedging, sld, cycles, oh my!
Who’s Selling These Deep Out Of the Money Puts (DOOMPs)?
When thinking about who just took a massive DOOMP on the options chain, we have a couple prime suspects...
Convertible Bond (CB) Arbitrage Funds? Maybe.
If it’s the same CB arbs, then selling $5 puts would be a way for them to extract additional premium while remaining extremely long-delta biased on their overall positioning and creating more convexity in their portfolio. They’re already shorting the stock to hedge their bonds, so selling deep OTM puts could be a way to capitalize on the excess volatility they’re helping create. However, this would be a longer-dated play than what CB arbs typically focus on... they’re more about gamma scalping than selling multi-year LEAPS... so it doesn't really make much sense to me that it would be THEM doing this...
A Separate Volatility Seller?
https://preview.redd.it/arhiwgofhpre1.png?width=736&format=png&auto=webp&s=1f4043922e0cab030f8761ac6e7bffcd10c7f6b5
Selling a $5 strike put means you’re betting GME won’t be under $5 by 2027. Whoever did this, essentially set themselves up with millions of shares of exposure if GME goes down under $5/share... it fucking won't... it's not about the deltas... remember, we're playing with more "special" Greeks today. This is most likely a big institution selling volatility, trying to profit off inflated IV in the long-dated options chain.
If this is a big vol-selling institution (👀shitadel), we just got a new whale fight ting them and Im fucking excited to watch it play out and ride the waves again... oh do i miss those beautiful cycles...
Volatility Is The Game and the Game Stops with Volatility
These deep OTM puts aren't random, and they tie into the bigger volatility farm happening right now. Whoever sold them... on that, I'm just gonna leave this here.
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