Struggling retailer GameStop’s stock strangely hit an all-time high today. But it’s not because Sony, Microsoft, and Nintendo suddenly decided to stop selling their games digitally. And not because a new series of Funko Pops has taken the internet’s imagination by storm.
No, the stock price jumped to an all-time high as some institutional investors bet the company would fail, and a number of amateurs on social media decided to call their bluff and try to get rich in the process.
GameStop struggled to reinvent itself as video games became increasingly digitized. Now established investors and Reddit day traders will battle for their futures and make the company’s stock price do ridiculous things.
GameStop shares were trading at just under $ 20 per share at the beginning of the year. In the weeks since then, the value has more than tripled, hitting its high of just over $ 73 today. “GameStop is up 174% in January, with average 10-day rolling daily volatility peaking at its highest level in nearly two decades the stock has traded.” Bloomberg reported.
GameStop did not immediately respond to a request from Kotaku
As Ars Technica Reported earlier this weekSome investors short of GameStop’s shares last fall, effectively speculating that it was overvalued and would implode, potentially making them a ton of money.
I am not a financial expert. Probably not you either. However, the principle of “selling short” is pretty simple: you believe that the price of an asset will go down, so borrow it, sell it at its current price, and when the price goes down buy it back to give to everyone You have borrowed it and pocketed the difference.
In the meantime, people are hanging out on subreddits like Wallstreetbets (described as “How 4chan found a Bloomberg Terminal”) and the Financial influencer empire from TikTok (Nickname FinTok) began using their money to keep GameStop going. The web-driven campaign was facilitated by apps for low-entry barriers trading such as Robinhood.
“[E]In essence, people on WallStreetBets along with several YouTube and TikTok investors suspected as long ago as a year ago that if the short sellers bought GameStop stock at a low price, they would ultimately be forced to cover their short sales in bulk, which the stock would drive price high, ”wrote Vice in the another great explainer published this week.
Short circuit seemed like a reasonable bet Months of bad news and bad financial reports come from GameStop. But then as Vice pointed outReddit financial personalities started thinking about how they thought GameStop was a great investment opportunity. The logic was based on how many other investors were already shorting it. Just today, CNBC
If someone shorts a stock, that is, sells it and gives the original owner a bond, and that original owner needs the stock back, they have to “cover” the short by buying additional shares. This helps boost the stock’s price even further, make it more valuable, and potentially create a feedback loop where it keeps rising as everyone tries to buy back from the same limited pool of stocks.
One of the GameStop short sellers is Andrew Left “Wall Street’s Bounty Hunter” by The New York Times Because of his reputation as a short seller, he thinks companies are weak and then publishes research on why the company is going to fail or in some cases alleged fraud. Yesterday Left posted a six and a half minute video on YouTube He campaigns for why GameStop is doomed to fail. WallStreetBets, in turn, organized what financial expert Jim Cramer called “an ambush, “Pump up GameStop’s inventory a coordinated campaign Left to “squeeze”, forcing him to buy tons of his own stocks to “cover” his position and make their stocks even more valuable. Jim Cramer is an absolute idiot
GameStop’s current stock position then likely has less to do with the long-term outlook than with chaotic amateur day traders exacerbating the existing craziness in the market. Some of GameStop’s optimistic gamblers may have rightly found out that they were short sellers also negative for the future of the company. As with anything on the internet, what may have started with some people trying (and managing) to make a ton of quick buck has grown into much more, including some sort of crusade against the left as well as an unlikely source of GameStop fandom .
GameStop announced Ryan Cohen earlier this month would take a seat on its board. Cohen used to be the CEO of pet food website Chewy.com, but he’s already a golden boy meme in the GameStop stock world. Look up his name on Twitter and you will find it People tweet things like “Papa Cohen is going to take us all to Mars to attract homies. It will be a bumpy ride to the [rocket emoji] so you don’t fall down “
It’s hard to know how much of this is a real personality cult, and how much of it is internet irony, but it speaks volumes about what a bizarre moment GameStop is having right now and what improbable confluence of events it has created.