Explaining shorting a stock/this GameStop stuff in terms of Taylor Swift:

Let’s say Taylor has 5 CD copies of Me! to sell. Originally they were $5 each but after seeing reviews and people’s reactions to the song, Scott Borchetta thinks the price will decrease.

Scott decided “short” the Me! CDs and here’s how: he can buy the CDs from Taylor, sell them to fans for $5, wait for the price to drop, buy back the CDs from fans at a lower price, then sell the CDs back to Taylor at the original price and make a profit. Here’s how:

Let’s say the price of Me! continues to go down because of reviews and Me! now only costs $2. The public is convinced they hate the song because of the reviews and want to sell their Me! CDs. He then buys the 5 CDs back at this lower price for a total of $10.

Since he just borrowed the CDs from Taylor, he has to return all the CDs to Taylor. Taylor has to pay him the original market value for these CDs ($25) so Scott Borchetta makes $15 in total.

What happens if the price goes up the other way? Let’s say Scott is confident and wants to buy more CDs to make money. He thinks that cardigan is going to flop so he tried the same strategy and buys 5 cardigan CDs for $5 each.

After Scott buys the CDs, the popularity of the song increases and everyone loves it. Now each cardigan CD is worth $10 each instead of $5.

Since Scott only borrowed the cardigan CDs from Taylor, he has to return them. Scott doesn’t have the CDs so in order to return them to Taylor he has to buy them back.

Scott is now forced to buy the CDs at $10 each. He returns the CDs to Taylor and she pays the original market price, $5 each. So, Scott buys the CDs for a total of $50 and only gets $25 from Taylor so he just lost $25 dollars.

How does this relate to what’s happening today? GameStop stock is like the cardigan CDs and the hedge funds are like Scott Borchetta. The higher the price GameStop shares go, the more money these hedge funds will lose.

As more people buy the stock it will increase in price and these hedge funds will be forced to buy back the stock at the new increased price. The same hedge funds that ruined people’s savings in 2008 will now suffer.

Note: in one of the tweets I said that Scott buys the CDs from Taylor. I meant to say borrows. The explanation further down stands. Sorry for any confusion.

Why is everyone saying hold or buy GameStop stock? In our example, Taylor Swift stan twitter can hype up cardigan to increase the value. The more they convince others to love cardigan, the higher the price goes. In GameStop’s case, r/wallstreetbets is Taylor Swift stan twitter.