Gamestop(NYSE: GME) shares touched $372 today, while it’s price on 1st Jan 2021 was a measly $17. This insane stock rally is a result of these players:
- r/wallstreetbets, a reddit group which has memes and stock advice
- Hero – User – DeepFuc*ingValue
- Melvin Capital Managment
- Michael Burry & Ryan Cohen
Here is the GME short squeeze which is happening right now explained in the most simple and short form.
Gamestop a store which sells physical video games in today’s digital era, when most of the purchases are made online, nobody believed that the company had any value or a bright future.
Yet in the month on January alone we have seen around 1800 % rally of it’s listed stock price on the New York stock exchange.
So what caused this massive rally in a boring and non innovative company like Gamestop Corp(GME).
First came the hedge funds like Melvin Capital Managment – a multi-billion dollar hedge fund…which had been accruing a big short position in Gamestop. Generally these hedge funds don’t disclose their shorts- but these were ‘listed put options’ so some clever reddit users discovered the position.
So as multiple Hedge funds were shorting the GME stock, they had essentially borrowed it at high price thinking the price would go down and then they would return the shares and enjoy the profit on the difference of price.
On a reddit forum called /r/wallstreetbets , users started discussing the potential for their next big trade. One such user named deepfuc*ingvalue, had put in a mighty $50K bet on GME in options. ( This was in September 2019). His/Her bet is already worth more than $26 million.
They discovered the fact if they could buy and hold the major supply of stocks for GME, the hedge funds would have to buy it from the shareholders at a price which they demanded. Hence the share price is rallying higher as the retail buyers refuse to sell.
This image explains stock shoring in an simple way:
So essentially more and more people started buying the GME stock in order to pick up all the available shares from the market.
When the hedge fund’s had to return their borrowed shares, the users (share holders) didn’t sell, this resulted in price increasing exponentially as there is demand from both sides the retail buyers and the hedge funds.
The market was so volatile that GME stock more than doubled on the market opening on Wednesday(27th Jan). Along this we saw a dip in the crypto markets, with people saying that – “investors are leaving crypto to get into stocks as they provide a better opportunity for quick money”. How the table’s have turned 😉
Read more details in these twitter threads and the links given below.
Current Michael Burry Portfolio 2020 – Link
Read More: GME Full Story
Two other stocks which can have a similar rally- BlackBerry(BB) and AMC Entertainment Holdings Inc(AMC). Please do your research before investing into these stocks, as call option and future trading carry higher risk and are more complex than the common stock trading.
Our hero has been regularly posting screenshots of his unreal gains which are appreciated and followed thousands of people of /r/wallstreetbets.
Source: CapitalMind, Twitter