Welcome back to the channel everyone today, i want to talk about why short hedge funds create zombie stocks, how it basically gives them zero risk when shorting and how they use it to profit massively so stay tuned and let's make some money, but before i dive into The video i just want to give a massive shout out to the 4 500 of you that have currently ding that notification bell, because you guys are always the first to watch a new video as soon as it's released so guys be sure to drop a like Down below subscribe to the channel and ding that notification bell, if you haven't already so that you don't miss another video, just like this one and just a quick one before i dive in with the key information, be sure to check out those links down in the Description below to get your free shares with moomoo or with free trade, to check out the merch store to pick yourself up. Some cool merch like this and to join the private discord and become part of the team. And now i want to dive straight in with the key information. So, let's firstly start off by giving you the definition of what a zombie stock really is.

A zombie stock or a zombie company was once upon a time a company that was very, very successful like blockbuster or sears, for example, but the stock declined massively and the company went bankrupt. But technically these companies didn't go bankrupt and get dissolved and the stock and the company completely disappear. They were instead bought out by a private equity company and continued to trade on the over-the-counter exchange, just a fraction of a penny and a fraction of what they once were, for example, right now right this second, you can still invest in the blockbuster stock, and it's Currently worth 1.8 cents, although if you did invest in it a few days ago, you'd be sitting on a substantial amount of gains, as it just increased by 1.7 cents, so a 1700 increase before that it was 0.1 cents. So let's talk about why these companies like blockbuster still technically exist and why they're just relegated to the over-the-counter exchange and trade for a fraction of a penny or nearly two cents.

So, let's clear some things up about zombie stocks, i've seen a lot of contradicting information. Today on these stocks and i'd like to spark some real discussion and critical thinking on the manor, i firmly believe there is fud and narrative pushing going on because we've uncovered some real skeletons, this time, they're pumping to increase their books because they're long on these stocks, Her duh yeah, i call shill so here's what we know. So-Called zombie stocks have run ups prior to periods of high buying pressure on amc and gamestop. Zombie stocks are technically not publicly traded, but this doesn't mean you can't buy them more on this later short hedge funds will short companies, they believe to be dying into oblivion, likely creating many times the float worth of synthetics with complicit market makers, the lower the share Price of a shorted stock, the more money that they make on the shore.

Obviously that's how shorting works, but taxes do not need to be paid until a gain is realised that works for you and i as well. We don't pay taxes on our unrealized gains only when we realize those gains and withdraw the cash and when we actually receive the cash or maybe even just pay tax on the realised gains themselves. So, let's start piecing this together with a short timeline scenario: blockbuster denies a purchase or a buyout from netflix, it starts losing market share. Streaming starts, taking off things, start looking grim for its business model.

Short hedge funds see this as a prime opportunity to make some easy money. They short the company into the pit. The ultimate goal here is to drop the share price to under one dollars a share, but why well, let's look at the requirements for being listed on a public stock exchange and also the requirements for remaining to be listed on that same stock exchange to be listed On the new york stock exchange, you need to have a share price of over four dollars and a minimum market value of publicly held shares of over a hundred million dollars unless, of course, you're an ipo, a spin-off or a car valve and i'll just blow. That up on the big screen as well, so you can see it and read through it if you so want, as you can see, there's quite a few requirements that need to be met to get listed and the same goes for staying listed from investopedia listing requirements Vary from one exchange to the next, for example, on the new york stock exchange, the nyse.

If a securities price closes below a dollar for 30 consecutive trading days, that exchange would initiate the de-listing process. Furthermore, the major exchanges also impose requirements related to market capitalization, minimum shareholders, equity revenue, outputs and sometimes even more as well cool, so if they can increase supply and distort a company enough to drop it under one dollar for more than 30 days, it gets delisted. But what's the point of getting it delisted? Well for one there's a stigma around the listed stocks, they're much less likely to get investment from institutions and external sources. They can't be added to indexes.

Exposure to buying pressure is greatly reduced and typically retail investors like you, and i can't invest in these companies as easily. It's very easy to get access to stocks on the new york stock exchange or the nasdaq, but more difficult to get access to pink sheet stocks and over-the-counter stocks. So are you seeing the benefits yet once a stock gets delisted, it greatly reduces the risk. For that short position, it greatly reduces the risk that that stock will ever go above one dollar again if they can get it below a dollar and get it delisted, but we still don't have the full picture yet.

So, let's continue our timeline. Blockbuster goes bankrupt. Short hedge funds succeed in getting them de-listed. They hold massive massive short positions, potentially as much as 30 per share in profit.

If they did to this company, like we suspect for amc and gamestop, then we are potentially talking hundreds of billion dollars of profit on just blockbuster alone, and this is where taxes come into play, since you don't pay taxes on unrealised gains. If you don't close your position on these dead stocks, you never have to pay taxes to uncle sam. The question now becomes: how is this short position useful or profitable, if you can't ever cash out, because, obviously, if these short hedge funds cash out and take their profits, they realize those profits and have to pay taxes. So how is it beneficial to them to hold massive massive amounts of unrealised gains? Well, meat leverage when buying on margin, unrealised gains can be used as leverage, obviously, unrealised gains increase, their total portfolio size and therefore it's just more cash or more collateral that they can borrow against.

If your portfolio is denominated by a large block of stock from one company such as a current or former employer, you could be putting too many eggs in one basket with a margin account. However, you may be able to use those shares as collateral for a margin. Loan, you can then use the loan proceeds to diversify your portfolio without having to sell off your original shares of stock. This strategy can be particularly helpful if you have a large unrealized capital gain and want to keep it that way, and that comes directly from fidelity.

Therefore, if you close your position, you're cutting your collateral for margin into fractions of what it could be by keeping those positions open. Why pay 50 billion dollars on a 100 billion dollar short position when you could use 700 billion dollars on margin with that same position, because, obviously you don't have to take out margin in a one to one ratio? Many banks, many institutions and even many retail traders can take out margin many times their current collateral position. In the uk, for example, i have a feeling margin is limited to five to one. However, when you're trading crypto on platforms like bitmex, for example, you can use a hundred to one leverage.

You can borrow up to 100 times your initial deposit to trade crypto, for example. So this is all rubbish sure, but how does it tie into amc and gamestop and that's the question everyone's asking? We know they love trading on ungodly leverage ratios seven to one or even more. In 2008, it was rumored that citadel were currently trading with a whopping 7.8 to 1 leverage ratio, and we know that these positions in zombie stocks are likely contributing to a huge percentage of their margin collateral. So what happens when one of their short positions becomes unmanageable? But they can't close that position without screwing themselves over obviously, at the moment, the shorts are so over leveraged on amc that, if they close those short positions, it bankrupt the company because they're sitting on such massive unrealized losses.

If these hedge funds have been shorting amc since four dollars, they're very, very far into the red, and especially because they're, not only just shorting, these companies legally but they're, creating synthetic short positions as well. Therefore, it's likely that their short positions aren't just in the billions of dollars, but potentially even in the trillions of dollars. Well, obviously, if they can't close their position without going bankrupt, they start getting calls yep those margin calls and to satisfy those calls. Liquidations have to take place.

The run-ups we are seeing on zombie stocks are the closing of those short positions, although a second theory that i had is maybe they're using a second trading account and going long on these zombie stocks and then pumping up these zombie stocks beyond belief to create even More massive unrealised gains, for example, let's say on thursday citadel just invested 10 billion dollars in blockbuster well now, as of friday or as of today, saturday they'd currently be set on 170 billion dollars. They would have made a 17 000 profit on their investment, but it's unrealized, and they can borrow against that now. They could have used 10 billion dollars now turn that into 170 billion, and they could borrow nearly up to a trillion dollars against that money. There was only originally 10 billion dollars, as we've all learned to close a short position.

You must buy the shares back and return it to the lender, but wasn't the stock d listed and no longer publicly traded? How do you buy a stock which isn't publicly traded? Well, welcome to the otc markets. Over-The-Counter refers to the process of how securities are traded via a broker-dealer network, as opposed to on a centralized exchange. Over-The-Counter trading can involve equities debt instruments and derivatives, which are financial contracts that derive their value from an underlying asset, such as a commodity. In some cases, securities might not meet the requirements to have a listing on a standard market exchange such as the new york stock exchange.

Instead, these securities can be traded over the counter. However, over-the-counter trading can include equities that are listed on exchanges and stocks that are not listed. Stocks that are not listed on an exchange can trade via over-the-counter, and these are typically called over-the-counter equity securities or otc equities. You see being de-listed doesn't mean you can't trade.

The stock, it means you need to jump through a few hoops to do so. Most reputable brokers have some way to trade these securities, whether that means calling and talking to someone over the phone or using their mobile app or even opting into penny stocks. The important thing here is that you can buy and sell these stocks, so short, hedge funds start buying from over-the-counter markets to close these short positions on zombie stocks to shore up the books, and this can cause a small run-up of price. Due to the bid ask spreads in over-the-counter markets being very wide.

Usually that means when we see run-ups in zombie stocks. They are under financial stress, alternatively, they're still under financial stress and that's why they're going long on these stocks and then pumping up the price, so they have massive amounts of unrealised gains that they can borrow against. So now, when you see this image, does it rustle your jimmies as we can see, this is a chart that plots multiple different securities in 2021 in january february march april may june july august and the start of september, as you can see, there's massive massive spiking In a lot of these stocks between august and now september, as well, that image is actually the volume of 1 700 plus over-the-counter non-retail tradable stocks, and it's not just blockbuster sears toys, r, us, it's thousands of stocks in secret apes are shedding light on the literal Foundation of the short hedge fund, business model and we've been getting hints the whole time, as you can see, ryan cohen figured this out months ago and even tried to give us hints tweeting about blockbuster and sears and as a bonus, who remembers the amendments to rule 15C 2-11 changes to over-the-counter markets to take effect this month, which were to limit the buying of over-the-counter stocks and prevent brokers from pushing over the counter quotes. Now, i'm not saying there's anything here, but it definitely feels like preventative measures.

You wouldn't want millions of apes piling into a stock at say, half a penny per share or half a cent per share. When you have billions of shorts there now would you and somebody else on reddit had the same thought process as me, i think citadel is using dead companies. Over-The-Counter stocks like blockbuster sears and others that they've collected shares on and rising the price to create collateral in the books. This is what dr t was pointing to in her tweet.

If you own every share in a company, that's gone under shorted, be on the float and you raise its value to a few cents. You can create billions in fake value, for books as collateral in margin. They've become that desperate to survive their margin calls guys. Let me know down in the comments below what you think about zombie stocks and short hedge funds, using these zombie stocks to create collateral, that they can borrow against and also be sure to check out the links down in the description below as well.

To get those free shares with moomoo and with free trade, to join the private discord and to check out the merch as well, and as always guys, if you enjoyed this video, be sure to check out some of my others. Alternatively, subscribe to channel and ding that notification bell, because that way, you'll be alerted when i upload a new video cheers.