The idea is the short sellers have to cover first due to margin calls at a huge loss, then the retail investors unload.
Everyone knows GME is over valued by an insane amount, who do people expect to be snapping up shares at $500?
(not saying this is indeed what would happen, just explaining the though process)
This is incorrect. Short sellers only need to close out their positions if:
1. They cannot maintain them. If they can raise funds ( which they did ) they can maintain the positions. In fact they are probably shorting more, short averaging up if they can get a locate. GME yesterday was on a hard to borrow not on non-borrowable list.
2. Their shares are called back.
GME looks like a crazy stock around 1998/1999 ADEP(?), I think, which went from sub 3 to over 75 two days before Thanksgiving peaking with a couple of trades over 97 followed by a quick crash into teens and a really slow side into pennies. Some of the short sellers covered by putting up classified ads buying stock certificates from the cause the short squeeze by asking to deliver the certificates crowd a few years later.
I will say though, price going up forcing short sellers to close out (due to margin calls, fear, whatever) is not some made up thing..it's called a short squeeze. I do not know what will happen with GME.
They do not need to close out their positions until the stock becomes non-borrowable, causing their position to be called in.
I think at this point for a lot of people its "hold until they can't maintain, this isn't about money it's about screwing over the man!!!!" - as they say the market can remain irrational longer than you can remain solvent.
Margin calls after today's close are going to be brutal.
The people they targeted borrowed liquidity and may have even short averaged up. To be honest, in the end, the net effect of this thing may be something similar to a pump and dump.
I feel bad for the retails that are really gonna take it on the chin. At the same time, I'm sticking to my guns. We have to let all the people who lose in this thing fail, or nothing will be learned. It will need to be painful for people to be more careful in the future.