Link: https://old.reddit.com/r/Superstonk/comments/1vh03gk/debtforequity_on_gme_transient_shorting_pressure/

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The original was posted on /r/Superstonk by /u/MyNi_Redux on 2026-08-06 10:11:12+00:00.

Larry Cheng recently suggested that the convert holders agreeing to take shares for debt is a vote of confidence from them.

It's not that straight forward, and some nuance is necessary here.

What he says makes total sense from a VC's point of view. They are all about the explosive upside. And when they offer debt, its so that they can convert to equity. It's why SAFE notes are a thing.

But that's not quite how corporate debt swaps work.

First, recall that convert bond buyers heavily shorted the stock to delta hedge:

• The first $1.5B 0% Notes due 2030 priced on Mar 27, 2025 resulted in the +20M shares shorted spike between 3/14/25 and 4/15/25. SI went from 7% to 12%.
• The second $2.25B 0% Notes due 2032 priced on Jun 12, 2025 resulted in the tall-ass bar of ~+33M shares shorted, around the 6/13–6/30/25 settlement window. Larger raise, so bigger spike in SI. SI went from 12% to 19%.

Of course, it wasn't just the convert holders shorting - the market piled on too, to front run and profit from this.

We can see this visually below:

Source: https://chartexchange.com/symbol/nyse-gme/short-interest/

It is possible that some of this paper has been sold but given the recency and the continued high vol GME enjoys, I'd expect a lot of them to still be holding.

Anyhow, the first thing we can expect is that this SI connected to these converts should fall, as $1.4B represents 37% of the converts outstanding. Could translate up to 3-4% of reduction in SI as hedges are closed. We won't see this until after Sep 23, 2026 though as that is when this transaction closes, but this can provide some tailwind if done in a short period of tie.

The second perhaps more interesting thing happens in the meantime. Because of this whole 35-day VWAP thing, those doing the debt-for-equity are exposed to GME price fluctuations. To lock in the value of the shares they're about to receive, these guys would short into the averaging period to lock in the value of the shares they are about to receive.

To be clear, this is transient new short-sale flow, which then unwinds at settlement. The actual amount of shorting will depend on how much GME falls. Unfortunately, this contributes to the headwind that the stock is facing as market prices in all that dilution too.

So.. two major takeaways here:

1. SI will likely go up over the next month before coming down a few percentage points after the debt-for-equity swap concludes
2. Larry Cheng's note misses the mark in terms of what is happening

For reference, here is his tweet and my response below:

https://preview.redd.it/e4taqv8o6qhh1.png?width=601&format=png&auto=webp&s=4c93658ede0c4926d2d0aeed397cae7bdb2df8ff