I guess anything is possible. I must admit that I didn't really follow your example. No offense intended.
My personal preference is to break complex stuff like this down into basic first principle elements before exploring other more complex plays. Even the most complex task should be able to be broken down into basic bite-sized logic flow pieces that can be readily explained and understood as part of the more complex whole. If it cannot, then it either isn't viable or a key part of the equation is missing in our understanding.
I watched with interest this afternoon Travis from Thursday's the MoM poddie doing his level best to break it down and explain it all in a coherent manner. I thought he did a pretty good job. We both tripped over the same aspect relating to MS and MLI immediately turning around and block trading (shorting) the holdings that GFL lent them. He offered the same possible explanation as I surmised relating to raising the cash the funds to then lend back to GFL. However, it looked to me like he was far from comfortable with how that aspect fitted with the broader logic flow at the time of going to air. Solidarity brother! The more I think about that aspect of the cash lending scenario (i.e. Door #1) the more difficulty I have reconciling the short on-selling aspect by MS and MLI. I'm not saying it's not possible. If it is what actually happened, then I'm clearly missing a key plank in the logic flow that makes it work.
Where I continue to struggle in the short-selling/cash lending scenario is where the lenders of cash sell the collateral (they have borrowed from the customer who wants the cash loan -- GFL) to raise said cash to lend back to the customer. By doing this they now don't have the collateral any more and they don't have the cash raised from the short-sale proceeds (which were remitted to the cash borrower, GFL). Perhaps it's as simple as the liabilities having now netted themselves out between the two (i.e. GFL's cash borrowing liability conceptually nets out against the physical shares borrowed liability of MS and MLI)? Dunno. There are still unexplained holes relating to previously sold covered Put oppies potentially now being naked.
Where Travis
really added some value, imo, was from 3:00 (
link) in the poddie where he showed a snip from GFL's May, 2023 reporting that clearly mentioned
"... utilizing derivatives portfolios such as collar position to protect the value of shares (such as shares of Pilbara Minerals Limited held by the Company)."Hello!
So, emboldened by Trav's v.nice find in GFL's 2023 reporting (above), and sans a compelling comprehensible logic flow to the contrary, at this stage I'm going apply Occam's razor and land on the simpler explanation, being Door #2. That is, no cash lending GFL, but a scenario in which GFL is nervous and took steps to protect its portfolio from near-/mid-term SP weakness by creating the various OTC collars with the help of its investment bankers. And as part of the broader hedging strategy lent out its stock to earn some coin from MS and MLI to enable to take (or increase) short positions on their own accounts. If nothing else it's a vastly more understandable logic flow that can be neatly explained in two sentences.
I doubt we'll never ever know for sure what the precise play was. Regardless, it seems pretty clear now that we can expect another ~100m net shorts to add to the overall tally during next week.
Finally, in the Green corner there's RIO, reportedly sniffing around ALB and ALTM/LTM which could make things interesting.
Cheers,
Z
(20min delay)