Chapter 232: Counterparty

Sigma Capital Risk Room.

The numbers on the wall screen rose again, triggering warning sounds.

[Risk]

· Gamma -3.2 → -7.9 (rapid deterioration)

· Vega exposure +41%p increase

[Prime Brokerage]

· Locate Fail: New borrowing unavailable (HTB = 0)

[Recall]

· Full recall notice from 5 long-only anchors

CIO Matthew shouted urgently.

“Cover the shorts! All remaining strips.”

It was an order to bundle all short positions and cover them, but the quant team leader’s reaction wasn’t positive.

“……There’s an absolute shortage of volume to sweep at market price.”

In a market where selling volume had dried up, buy orders kept piling up.

As he spoke, another gap in the order book disappeared.

【DJFT: $21.83 ▲+1.05%】

【Call option execution +580% / Skew ‘call-heavy’ reversal】

The stock price kept climbing endlessly.

Matthew covered his face with both hands.

The loss was already beyond estimation, and cutting losses wasn’t easy either.

…

…

…

QuantBridge Server Room.

The situation here was no different from anywhere else.

Alarm sounds pierced through the noise of the cold cooling fans.

[Autopilot]

· Short rebalancing loop stopped → Manual switch

[VaR]

· Predicted loss limit exceeded 3.1 times

· 99% stress scenario breached

[Options]

· Call selling limit reached → Further execution halted

The risk had grown too large, making rebalancing impossible with the algorithm alone.

Losses had already exceeded estimates by more than three times, and the call-selling strategy for hedging could no longer proceed due to reaching its limit.

The head trader shouted.

“Press the vol curve’s flanks! Sell deep ITM calls and buy puts to reduce gamma exposure!”

The options manager shook his head hastily.

“It’s not possible now. The bid-ask spread has widened to five times. Efficiency is too low in this state.”

While they hesitated, the dealers’ hedge buying took over the market.

Buying begetting more buying, and the ladder of the negative gamma section grew steeper, with rises fueling more rises.

【DJFT: $22.46 ▲+3.98%】

【Gamma explosion section entered (estimated): $22~$23】

GoldenEdge Main Trading Floor.

Sarah Morgan gritted her teeth and handed over the report.

“Two prime brokers…… have requested same-day repayment.”

Included was a warning that failure to repay would result in the short positions being forcibly liquidated at market price.

Lionel’s voice cracked.

“Swaps? First, let’s review how to bypass with swaps…….”

Vincent Crowe cut him off.

“TRS unwind has already started. Prime brokers are buying physical shares without our consent.”

Due to margin shortages, prime brokers were directly buying to hedge losses regardless of reason.

As soon as he finished speaking, the ticker at the top of the screen flashed again.

【DJFT: $23.02 ▲+6.57%】

【All-time high (23.00) broken — New peak】

The entire desk froze momentarily.

But that didn’t resolve the urgent situation.

The options panel fluctuated wildly again.

[Option Execution]

· Call execution volume: +720%

· Total dealer hedge: Accumulated 81 million shares (estimated)

· Gamma exposure (GEX): +Extreme, upward skew

Sarah Morgan shouted with a pale face.

“Dealers are placing indiscriminate buy orders in the market to hedge!”

Lionel closed his eyes tightly.

Forced liquidation alerts kept ringing in his ears.

Top floor, Dojin Industries.

Lisa and Grant were looking at me with bright expressions from the video conference screen.

[I’ll start with the results so far.]

I nodded at Grant’s words.

The stock price trend alone suggested the outcome, but I was curious about the specific numbers.

“Also, report on the short sellers’ position status.”

[Understood.]

Grant nodded and shared the organized data via video.

【Performance Summary - Physical Shares】

• DJ Capital + Subordinate Hedge Funds

· Shares held: 490 million

· Average purchase price: $12.13

· Current price: $23.02

· Return rate: 87.75%

· Current value: $11.2798 billion

· Expected profit: $5.3361 billion

【Options P&L】

· Ladder strategy (Weekly/Monthly ATM·+10·+20·+35): Realized $31 billion, Unrealized $24 billion

· Estimated dealer hedge absorption: Accumulated 81 million shares

“So, the profit from this short squeeze is $53 billion in physical shares and $55 billion in options?”

[That’s the current figure, and considering forced liquidations, profits will increase further.]

“……Alright. Continue.”

Grant then showed the status of the short sellers’ positions.

【Short Position Status (Estimated)】

• Total short position: 560 million shares

· Decrease over last 5 trading days: –130 million shares

• Borrowable shares (available): 0 (HTB, Locate Fail persistent)

• Buy-In Notice: Forced liquidation from 3 prime brokers, T+1

• FTD (unsettled shares): Surging as of D+3

Without any explanation, the data alone showed that short sellers were cornered.

Grant’s explanation echoed the same.

[Short sellers can’t borrow any more shares, and they’re under intense pressure to return the shares they’ve already borrowed.]

Lisa added.

[The options situation is even more severe. The call skew has completely flipped, and dealer GEX is skewed upward.]

Thanks to the call options we bought, dealers were frantically buying shares in the market to hedge.

“At this point, wouldn’t it be okay to liquidate our holdings?”

The profit from physical shares alone had already exceeded $50 billion.

That amounted to 6 trillion won in our currency.

[Liquidating in the middle of an ongoing negative gamma section…… seems a bit of a waste, doesn’t it?]

Grant argued that as supply decreased, the stock price would rise further.

As he said, the stock price was still climbing.

【DJFT: $25.17 ▲+1.18%】

Five consecutive trading days of rises since the first Leviathan launch.

Those who shorted were shedding tears of blood from forced liquidations.

But those who trusted me and held on were ecstatic over the continued stock price surge.

[However, the short squeeze won’t last much longer.]

Lisa had a slightly different opinion from Grant.

“You mean there could be selling to lock in short-term profits?”

[Correct. Currently, the short position is about 560 million shares, which is 17.5% of the floating shares (3.2 billion).]

Adding our holdings at 15%.

Long-term anchors like CIG (Singapore), Norway Oil Fund, and Abu Dhabi Investment Authority held 9.3%.

Combined, it accounted for about 40% of the shares in the market.

The remaining 60% were held by general institutions and individual investors.

While supply seemed tight now, over time, short sellers would be able to fully cover their positions, according to the analysis.

[I agree with Lisa, but due to prime broker forced liquidations and negative gamma, there’s potential for the price to rise to around $30.]

At $30, profits would increase by more than 50% from the current level.

Just as I was about to nod, thinking that would be enough,

Executive Vice President Oh Seong-hak entered, opening the door with unexpected news.

“Chairman, GoldenEdge, Sigma Capital, Delaware Partners, and QuantBridge have proposed block trades.”

He handed me the printed emails.

【Email 1】

• Subject: Block Liquidity Inquiry

· Sender: GoldenEdge PB

· Body: We wish to purchase your company’s Dojin Frontier shares in a block trade. Please confirm size, price guidance, and walk-cross (NDA) availability.

【Email 2】

• Subject: Liquidity Window Opening Scheduled

· Sender: Sigma Capital

· Body: We can open a liquidity window tonight (local time). We can process your Dojin Frontier shares as a clean block, with preferred terms of T+1 cash settlement. Target price range is $30–32. Walk-cross (NDA) available for detailed terms if needed.

【Email 3】

• Subject: Sized Bid Offered

· Sender: Delaware Partners

· Body: We intend to proceed with a firm purchase (Sized bid). We request confirmation of your holdings and related information after signing an NDA, followed by pricing discussions…….

【Email 4】

• Subject:…….

· Sender: QuantBridge

· Body:…….

“All four are offering to purchase the shares held by our hedge funds via block trade.”

“They certainly timed the emails like industry insiders.”

Just from the timing of the emails while we were considering how to secure confirmed profits,

it meant they had some idea of what we were thinking.

[I also think the short squeeze won’t last long, so it seems they’re suggesting we hand over our shares to them and take confirmed profits.]

And it wasn’t just Executive Vice President Oh Seong-hak who received the emails.

[We at DJ Capital just received the same emails.]

“Looks like they sent block trade requests to everyone holding a certain volume.”

[They seem urgent, but for us, settling via block trade is far more efficient than dumping at market price.]

As Grant said, liquidating such a large volume at market price would inevitably put downward pressure on the stock price.

On the other hand, a block trade would allow us to maximize profits at our desired price without market impact, and the transaction would be much simpler.

I placed the bundle of emails from Executive Vice President Oh Seong-hak on the table and slowly raised my head.

“Alright, let’s accept the counterparty offers, but on our terms.”

It was packaged as a ‘win-win’ for both sides.

But ultimately, I had to remain in control of the situation.

Therefore, the timing for transferring the shares wouldn’t be immediately as they requested, but after the second Leviathan launch in two days.

I planned to maximize the value of our holdings at that point.

‘That way…… we can sell the shares at the highest possible price.’