Friday, January 29, 2021

GameStop Stock Mania: Why Everyone Is Talking About It And Many Are Worried

GameStop And The Short Squeeze

THE INDICATOR FROM PLANET MONEY

GameStop And The Short Squeeze

So how has GameStop suddenly become the darling investment of online traders from Reddit's wallstreetbets forum?

As Wired reported:

" 'It was a meme stock that really blew up,' said WallStreetBets moderator Bawse1. 'The massive short contributed more toward the meme stock.' GameStop seemed so utterly doomed that the current situation was actually sort of funny to the subreddit's denizens. Banded together, WallStreetBets members bought in big enough to move the stock."

On Wednesday, a hedge fund called Melvin Capital closed out its short position in GameStop after taking a big loss, CNBC reported. Short sellers profit when a stock goes down.

Another short seller, Andrew Left of Citron Research, said in a video on Wednesday that he had covered most of his short position in GameStop at a loss. Last week, Left had predicted the stock would drop to $20 a share, from $40 at the time.

"I had no idea what that would set off," Left said. "This has captured the attention of ... America and every trader and nontrader alike."

Melvin Capital and Citron were caught in what's known as a short squeeze, forcing the funds to buy more GameStop stock to cover their losses, which ended up driving the stock price even higher. This has happened before, most famously with Tesla stock.

The GameStop rally came after investors saw glimmers of hope for the company this month when the chain changed the makeup of its board of directors.

For those Reddit members, all this isn't just about making money. "There's also kind of a populist thing happening here with a lot of these traders, judging by the Reddit threads. You know, they just want to poke a middle finger at Wall Street," says Paddy Hirsch of NPR's The Indicator From Planet Money podcast.

GameStop's stock symbol is GME. On Reddit, one member of wallstreetbets, wrote early Thursday: "GME is about sending a message. ... For all the recessions they caused. For all the jobs and homes people have lost. For all the people that can't pay for college because minimum wage has stagnated while wall street gets rich. For all the retail traders they left holding the bag. For all the times they got bailed out with our tax money while we got nothing."

Another member suggested that the Reddit traders were part of a resistance movement of sorts, writing, "[T]his is not a war on billionaires, the wealthy yada yada, but it may well be described as a resistance against injustice, inequality, rigged rules, uneven playing field etc which has been rampant on Wall Street forever."

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A wallstreetbets member, who vowed not to sell GameStop, wrote late Wednesday: "I am proud to be a part of this piece of history with you. ... Call it an opportunity, call it revenge, or justice, I know we are on the right side of thisRep. Alexandria Ocasio-Cortez, D-N.Y., a member of the House Financial Services Committee, weighed in on the GameStop phenomenon. "Gotta admit it's really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino," the lawmaker tweeted Thursday.

And it hasn't stopped with GameStop. Other companies that are suffering heavily during the pandemic are seeing their shares soar as people on Reddit's wallstreetbets talk them up. The companies include AMC Entertainment, the beleaguered theater chain, which shot up more than 300% on Wednesday (before dropping 56% Thursday), and American Airlines, which soared more than 30% Thursday morning (it closed up 9%).Robinhood, a popular trading platform for young traders, announced Thursday that "in light of recent volatility" it was restricting transactions for certain securities, including GameStop and AMC, and raising margin requirements. It later said it planned to allow "limited buys" of these securities, starting Friday.

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