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Meme Thread | The Story Behind GameStop stock surge
GameStop Corp (GME) is a struggling, mid-size retailer stuck in a legacy business selling physical video games. It is staring at Bankruptcy. Bcoz who goes to stores to buy games these day?
GameStop Corp (GME) is a struggling, mid-size retailer stuck in a legacy business selling physical video games. It is staring at Bankruptcy. Bcoz who goes to stores to buy games these day?
Player 1: Hedge funds
Hedge funds try to force down the price of weak stocks like Gamestop, and SHORT the stock (betting it will go down). It usually works fine most of the time.Hedge funds have made billions shorting stocks in the past.
First lets understand shorting
Hedge funds try to force down the price of weak stocks like Gamestop, and SHORT the stock (betting it will go down). It usually works fine most of the time.Hedge funds have made billions shorting stocks in the past.
First lets understand shorting
You can buy shares of a company or you can “short” a company (bet that it will go down).
Shorting has unlimited downside since the stock could technically go infinitely up (like Gamestop) & has a limited upside since the stock can go only to 0.
*Not so perfectly balanced*
Shorting has unlimited downside since the stock could technically go infinitely up (like Gamestop) & has a limited upside since the stock can go only to 0.
*Not so perfectly balanced*
When shorting you're actually borrowing stock that you don’t own from the broker.Then you immediately sell that stock & wait for the price to drop.When the price drops,you cash in & buy back the stock from market to return borrowed stock to broker. You pocket the difference.
Example: I short 1 share of ONGC at Rs. 100. So I borrow 1 share. I sell that 1 share to the market so now I have 100 in my pocket. ONGC drops to 90. I buy 1 share again (but only have to spend 90 since it’s cheaper) & then return that share to the broker. Rs. 10 is my gain
Lets get back to GameStop situation. Citron Research and Melvin Capital (Hedge Funds) which are notorious for short selling, had heavily shorted GameStop. These hedgefunds were so damn greedy, they borrowed more shares than actually existed i.e about 140% of shares available.
Player 2: Wallstreetbets is a trading/investing subreddit.
Posters on WallStreetBets have been touting GME aggressively.
Someone noted that these hedgefunds shorted 140% of all shares available. Sensing opportunity the group members (millions of members) started buying GME.
Posters on WallStreetBets have been touting GME aggressively.
Someone noted that these hedgefunds shorted 140% of all shares available. Sensing opportunity the group members (millions of members) started buying GME.
When group called Citron research announced that they are shorting $GME, the reddit guys said we are united, we will over power you & bought heavy. Hedge funds started to close of their short positions by buying shares causing a snowball effect & the price to rocket
Gamestop stock has gone from $4 to $300 in a month.What happnd is a “short squeeze”.
As the stock price goes up, those who shorted the stock start to lose more money. Some of them will give up & close their position,taking loss. This drives the price up further as supply reduces
As the stock price goes up, those who shorted the stock start to lose more money. Some of them will give up & close their position,taking loss. This drives the price up further as supply reduces
Targeting stocks that are heavily shorted makes it possible to orchestrate short squeezes.When heavily shorted stock jumps in price — bcoz,say,a crowd of individual investors all decide to buy at once—short sellers that can’t take the pain start buying back shares to cut loss
Conclusion: Basically this is what GME Reddit guys did to the big Hedge Funds
Meanwhile people like me and you watching all the madness unfold in GameStop. Hope you enjoyed the thread.
