How did a group of Reddit traders manage to make GameStop a $10 billion company?
So this has been one of the biggest moves I’ve seen a stock make since the “dot com” boom. I’ll give you a synopsis of what happened and what’s likely to come.
It all started when someone on a Reddit message board WallStreetBets noticed that GameStop had over 150% of its shares shorted. If you want to bet against a stock, you can sell the stock you don’t own and buy it back if it goes down – that’s called “shorting”. Brokerage firms regularly let hedge funds borrow the stock to sell now and buy back later.
WallStreetBets noticed that there were more shares short than shares existing. They came up with a campaign to have all of its members buy the stock on sites like Robinhood (take from the rich give to the poor… oh the irony) where you can purchase fractional shares. Well, when they did this, the stock went nuts. It was $4 as of August 11, 2020 and it’s now approaching $300 (as of January 27, 2021).
Remember the people who were betting the stock would go down? They now get a margin call because they, in most cases, did this on credit and have to buy back the stock at a ridiculously high price. IMO, this is a win for the little guy. Billionaire hedge funds got played by regular everyday investors.
If GameStop returns to a normal price, it will happen fast and furiously.