WHO PAYS FOR THE SQUEEZE DURING LIQUIDATIONS?! - AMC Stock Short Squeeze Update
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Who will pay for the AMC short squeeze? and how will they pay for the squeeze?
During a liquidation an un-levered fund would only be liquidated if their investments went to $0, ie if the SPY fell to $0. However, most if not all funds use leverage, and therefore they get liquidated/margin called when their fund falls below a certain value (when their portion hits $0, and the only assets left is the assets/cash they borrowed on margin)
As citadel uses 7:1 leverage, when citadel's $280bn fund falls to $240bn they will be liquidated and their entire fund margin called.
Citadel will be forced to sell off their remaining $240bn of stocks and use that money to cover any remaining shorts, and then send the remaining money back to the original lenders.
Obviously, during the AMC squeeze they're likely to use all of the money to cover the shorts, and may even need to borrow additional money from other members of the DTCC to cover all their shorts!
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