A company that went from $2.50 to over $350. Did GameStop create a new product or had any peculiar financial results?
So, what really increased the price by more than 3000% in just a few months?
GameStop was founded in 1984 in the USA and currently operates in many countries. It has several physical stores and it mainly sells games and consoles.
As you can imagine, it is not doing so well in this pandemic, especially with all the on-going lockdown restrictions in many countries.
Before jumping to why is this phenomenon happening, it’s important to know the meaning of short-selling a stock.
Short-selling is the act of borrowing some shares with the hope their value will lower in the future. When buying the shares back, an investor earns the difference between the borrowed shares-value and the price it was bought back.
Now, when a considerable sizable company decides to heavily short on an individual stock, the affected company can see its value downslide even more.
Unlike in a long position, wherein the worst-case scenario you can lose the invested amount, in a short position, there’s no limit (and there are also more fees associated with it by keeping those shares).
Short Squeezes happen, but usually due to normal market conditions such as a company’s financial results; the launch of an innovative product, etc.
To happen by market manipulation, is a whole different story…
Basically, a group of people and retail investors on a subreddit named Wallstreebets chose the goal of showing some of Wall Street hedge funds that they can’t simply decide the faith of some companies which aren’t performing well.
Even Elon Musk tweeted about these guys who are getting the attention from all over the media:
As of today (27-01-2021), Melvin Capital, one of the firms holding the more impressive hedge fund, has already lost more than $5 billion just in GameStop (GME).
And the stock keeps growing…
I wish I had bought some shares a few days ago 🙂
Update 27/1/2021 (evening)
The servers in Reddit and Discord were reopened
Update 28/1/2021 (evening)
Will all of this lead to the majority of investors moving to a decentralized market?