With the attention given to the stock market community following the GameStop stock growth, the Warrior Word is publishing sophomore Spencer Lehmann's overview of the events as the first of hopefully many articles on finance.
As we started our winter break, a historic event took place in the stock market. On January 13, the shares of the company GameStop began to inch higher. On the first day of vacation, the stock was $43 per share, and it reached a high of $483 per share just a couple of days later. This was around 1100% gain. Many began to wonder how this happened, especially considering that GameStop seems like an unlikely stock to be on the rise.
It started with hedge funds, large investment companies, large banks, and many others shorting GameStop’s stock. What this means is that they were betting on GameStop’s stock to go down because GameStop's popularity was slowly disappearing. A Reddit group called WallStreetBets, which is made up of average investors, saw this happening and seized the opportunity to force a short squeeze and make money. They saw this as an opportunity to not just profit, but to also take away money from large hedge funds. They came together and bought millions of shares, with volume reaching a high of 196 million shares. This created a short squeeze and the stock boomed.
The WallStreetBets were successful in both areas; they made a lot of money and caused hedge funds to lose a lot of money. Celebrities such as Elon Musk and Mark Cuban cheered for their success (see the tweets here and here). Billionaire venture capitalist Chamath Palihapitiya, also came to the defense of WallStreetBets and average investors in an interview on CNBC (see interview here).
While GameStop was the main focus, several other heavily shorted companies were promoted by WallStreetBets and grew higher, such as AMC, Nokia, BlackBerry, Express, and Naked. Trading in those shares became so chaotic that Robinhood (a free trading app) had to limit trading on many stocks since they did not have enough money to deposit with the clearing firm (DTCC) in order to comply with clearing rules.
The activity in the market was a once in a lifetime type event that made billions and lost billions. People have also begun to pay more attention to the stock market because of this. This publicity has caused membership in the WallStreetBets community to surge from around 2 million members on to 8.3 million members, one of which now includes me. GameStop has seen a big reversal in its stock price as of February 2, and it currently sits at $90 per share, down 81% since its all time high.