Since then, GameStop stock has soared more than 800 percent, almost cratering a well-known hedge fund called Melvin Capital. Left said Wednesday he has exited his short bet against GameStop. Of course, any hype online or on social media would raise a share’s price, but without the low entry price or the short squeeze, those extreme multiplier factors aren’t there. As the share price rose and rose, more people bought in – both to trigger the short squeeze, and because the price itself was now a way to make money. More than four million people are in it, usually discussing stocks and shares and where they’re going to invest money.
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The demand raised its share price massively, which nobody saw coming, and everyone who had banked on it dropping in value had to buy their shares back. If your bet was wrong and the price actually rises instead of falling, you’d lose money. This is a massively simplified explanation of something forex arena called shorting, or short selling – words you might’ve seen cropping up in your feeds in the last few days.
A year ago on Reddit I suggested investing in GameStop. But I never expected this
This exact scenario also can’t apply to other stocks that don’t have a significant percentage of short sellers, or that aren’t down in the dumps. For example, Reddit could not coordinate the same thing on Apple shares. When Elon Musk tweeted “Gamestonks” and linked to the r/Wallstreetbets forum, the share price jumped about 150% in after-hours trade (although there are suggestions the timing of the rise was a coincidence).
What is GameStop, where do the memes come in, and who is winning or losing?
This has nearly bankrupted a few hedge funds, to the delight of smaller investors, mostly organised and egged on by the online forum Reddit. You may have noticed that the stock price of GameStop, a struggling US computer games retail company, has soared from US$96.80 to $347.50 in the past three days – a rise of 359%. Or, more impressively, a rise of 10,692% compared to its price of $3.25 in April 2020. GameStop was one of the companies that loads of hedge funds (companies who do these bets) had bet on to lose a lot of value.
A short squeeze happens when a stock price that was expected to fall, instead rises. Traders who have shorted the stock now need to buy the stock to fulfil their obligations under the short – which drives the price up even further. Essentially, retail investors have found a way to use their collective buying power to exploit a weakness in short selling, and both make money and a point in the process.
GameStop shares plunge as traders dump stock
- A series of users on the Reddit forum r/Wallstreetbets noticed that GameStop was (a) undervalued by the market and (b) vulnerable to a short squeeze.
- WallStreetBets — whose meme-obsessed, profanity-spewing members call themselves “degenerates” — erupted with violent threats against Left that scared him enough to report them to the FBI.
- GameStop was one of the companies that loads of hedge funds (companies who do these bets) had bet on to lose a lot of value.
- Sounds like this whole thing proves that the stock market is nothing but a fever dream.
But huge numbers of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop. Nevertheless, most Wall Street experts say it’s only a matter of when, not if, these stocks return to earth. That’s because their stock prices are completely out of whack with the health of their businesses. In addition to the above-mentioned short interest that makes these stocks prone to spike on good news, individual investors in recent weeks have been using options that are further enhancing the effect. Particularly popular on WallStreetBets are “call” options, which enable investors to buy stocks at a predetermined price in the future.
They’re being fueled by an unruly crowd of rookie investors on chat forums like Reddit. A series of users on the Reddit forum r/Wallstreetbets noticed that GameStop was (a) undervalued by the market and (b) vulnerable to a short squeeze. Reddit forums trade tips on how to use leverage in forex trading anything from bodybuilding to relationships and finances, but this one is about risky stock market investments. It’s been around for years – offering a highly variable level of return to its members. “They seem hell-bent on taking on Wall Street, they seem to hate hedge funds and threads are peppered with insults about ‘boomer’ money.
These options force so-called market makers — usually big financial firms — to buy more shares themselves in order to hedge their own exposure. For others, it is a form of wealth transfer – the only losers in this trade are large hedge funds, and the winners are lower-income internet users, some of whom are only putting up a few thousand dollars. The “live by the sword, die by the sword” attitude to the hedge funds is, in many ways, revenge for the GFC. A lot of people are crowing that this is giving large hedge funds and traders How to buy decred a taste of their own medicine.
There are Love Island forums, football forums, history forums – you name it. The sort of thing you’d find between a doughnut shop and a makeup retailer in an American mall.
Other stocks that are surging include tech firms like Blackberry, Plug Power and Nio, a Chinese electric-car maker. Bed Bath & Beyond was up 27 percent on Wednesday, while shares of the Fossil and Express chains were both up 93 percent. GameStop is among a handful of previously unloved companies whose shares are spiking in recent weeks.
R/Wallstreetbets is marked out by a devil-may-care approach to shares – its users are keen to gamble big and disdainful of traditional traders. It has evolved its own language and in-jokes, with users openly talking about making dumb decisions and the subsequent coin-toss of losses and gains. Earlier this week, AMC’s stock spiked after the company announced it would avoid bankruptcy with new financing. In normal times, the news wouldn’t have necessarily boosted the shares — the financing means AMC is going deeper into debt and will water down its existing shareholders. Stonk is essentially just a funny way to say “stock” – and once you understand that, it explains everything else that has happened. The meme itself started circa 2017 with this absurdist, funny cartoon and it has now become the default lingo of r/Wallstreetbets.