GameStop and Reddit Stock Saga - Why has it become the talk of the town?

By Wajeeh Uddin 02 Feb, 21



GameStop a computer game retailer organization that has been in a horrendous circumstance for recent years, making a decent attempt for its endurance alongside other prestigious organizations like AMC, Blackberry, Blockbuster, and so forth. It is one of those companies that still prefer selling its products in person even though the world is evolving and digitizing itself. During the pandemic, GameStop has endured a ton as everything went on the web. However, it continued its business notwithstanding the troublesome occasions but it was expected that this company is going to vanish and fail miserably until a week before today when out of nowhere individuals went insane after seeing a startling and unforeseen ascent in its stocks.
 
Image source: BBC

A sudden shift in the story of the sinking ship of GameStop:

GameStop which is now the most talked-about company in the town has once been susceptible to short-selling, a term used in stocks in which the white-collar investors bet that the company would eventually fall flat and for this, they acquire stocks for selling and afterwards repurchase them when the stock winds up in a sorry situation. Along these lines, they figure out how to fill their pockets with tremendous measures of benefit. With that being said, GameStop was one of the most shorted companies that have ever existed. 

But, to everyone’s surprise, it went from being the most shorted to short squeezed. When the short-sellers observed that the stock is not falling any lower but its ascending with monstrous speed, they were compelled to cover their positions or purchase more stocks to limit their misfortunes. As short-dealers, for the most part, bet against an organization’s success, sudden inflicting change or gossip about a stock ascent or flattens its position.

Image source: Financial Times

This is exactly what happened in the case of GameStop when on Reddit - a huge online trading forum, some individual investors started talking about how the hedge funders are filling their pockets for free by considering that the shares of the company are unvalued. With this discussion, the company out of nowhere become the talk of the town attracting various individual investors to prove that the company has not yet become worthless and hedge funders cannot fill their pockets free of charge. This even energized more interest in spiking the costs of the stock.

Upon witnessing the case, the hedge funders were left with no option to buy even more stocks to conceal their disasters, henceforth they needed to offload their stocks at a fundamentally greater expense. 

Countless posts on the WallStreetBets subreddit loved observing short-dealers lose billions of dollars.

The story took a new turn on January 11, when the company welcomed three new directors on board including Mr. Ryan Cohen, a Chewy co-founder, who is an experienced person in digitizing things, which the company is currently in dire need of to proceed with its business.

With these directors joining the family of GameStop, the stocks took a careful spike of 13%, at that point two days after the fact they went to a 57% raise and afterwards to an ascent of 27%. The gigantic turn in the story came when on Friday, GameStop's stock was up a stunning 1,587% since the start of January. It is being said about a rough perspective that a single stock of GameStop is $225 today as compared to the previous year when it was worth $4 only.

Source: Google

As financial specialists following the Reddit bunch purchased a huge load of GameStop choices, short-venders had to purchase offers to cover their losing offers to boost the offer cost considerably further. 

A large number of individuals, including Elon Musk, ringed in which also helped in raising the interest of various people to start investing. 

In light of the current situation, CNN Steve Romans said: “The irony is delicious”. “An online flash mob beats Wall Street insider at their own game”.

GameStop has been considered as a useless organization that was wagered upon to fail miserably sometime in the not-so-distant future. Nonetheless, it refuted everyone with the assistance of the Reddit swarm advancing it and hit the hedge funders with soaring stock costs making them offload their stocks to cover their positions.

Considering the current circumstances, "Someone is going to get hurt," said Fisher, the former Dallas Fed president. "As happens with crowd behavior, you end up having people come in at the end at a very high price and getting burned.”

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GameStop share trading explained - BBC News