I'm kinda amazed nobody has a thread about this yet. In case anyone here has been living under a rock and therefore doesn't know what's going on, here's an article explaining it.
My explanation: Gamestop has been a struggling company, especially since covid hit. People are downloading games more than going into brick and morter stores anymore and covid only made that problem worse. And their stock prices started going down. Hedge funds, seeing them as a bad investment went all in on a short sell. A short sell is when you borrow a stock, sell it at a high price and then buy it back later on. If it drops in price, as expected, the difference is a profit. It might seem weird to buy and sell something you don't even own, but wall street rules aren't the same as the rules for everyone else. And they were being extremely aggressive, trying to push the stock price down lower and lower.
Enter reddit.
There's a stock trading subreddit called WallStreetBets. Some of their users noticed that gamestop was being short traded way below where it should be. In fact, hedge funds had short traded 140% of the company stocks. So, they decided to use this glaring weakness to stick it to the man. Several of them teamed up, lead by u/DeepFuckingValue and bought as much gamestop stock as they could. Well, regardless of how well the store is doing, if people are buying a stock, its price goes up. That's exactly what started happening to gamestop stock: price went up. Last summer, it was around $4 a share. Now? Now it's selling for $325 a share.
Here's the next problem: remember the short traders? They still have to buy that stock back but since its price is 80 times higher than it started out, they have to buy the stock back for way more than they originally sold it. That's the problem with short sells: the potential risk is infinite. Which is exactly what Wallstreetbets wants. A lot of the people in it are very specifically saying they're holding. They WANT to take down hedge funds. The hedge funds, on the other hand, are just waiting to sell their stock for the prices to go back down. Reddit has a couple of big advantages. First, interest payments are piling up on the hedge funds. If they have to wait a year to cash out, they also have to pay a years worth of interest and that's going to get pricey. But there's another advantage reddit has: Motive.
See, everyone here kinda knows Wallstreet has been screwing over main street for decades. The most glaring example would probably be 2008 when they all got bailed out for playing hot potato with home loans and a lot of people wound up homeless. But this isn't the first time it's happened. The general feeling has been that Wall Street has been financially screwing over everyone else, so everyone else finally decided to band together and beat Wall Street at their own game. The redditors aren't out for money; they're out for blood and they're getting it.
Melvin Capital already lost 30% of their fund and this isn't over. The redditors are still holding onto their gamestop stock, some saying they'll sell when it hits $1000 a share. They're pulling the same trick with other short selling companies like Nokia, AMC and even Blockbuster. Hedgefunds have been trying to do something to stop them, but what can they do? They've spent so much time and effort to make the stock market as unregulated as possible, so there aren't a lot of rules they can use to stop them. What few attempts they have made, trying to force stock trading aps to sell or restricting the buying of volatile stocks has netted them lawsuits for market manipulation. They're putting out article after article after article, all written by investment bankers, trying to tell people to pack it in and stop gaming the market against them. The redditors are just laughing at it.
I guess it's just a question of how this will end.
My explanation: Gamestop has been a struggling company, especially since covid hit. People are downloading games more than going into brick and morter stores anymore and covid only made that problem worse. And their stock prices started going down. Hedge funds, seeing them as a bad investment went all in on a short sell. A short sell is when you borrow a stock, sell it at a high price and then buy it back later on. If it drops in price, as expected, the difference is a profit. It might seem weird to buy and sell something you don't even own, but wall street rules aren't the same as the rules for everyone else. And they were being extremely aggressive, trying to push the stock price down lower and lower.
Enter reddit.
There's a stock trading subreddit called WallStreetBets. Some of their users noticed that gamestop was being short traded way below where it should be. In fact, hedge funds had short traded 140% of the company stocks. So, they decided to use this glaring weakness to stick it to the man. Several of them teamed up, lead by u/DeepFuckingValue and bought as much gamestop stock as they could. Well, regardless of how well the store is doing, if people are buying a stock, its price goes up. That's exactly what started happening to gamestop stock: price went up. Last summer, it was around $4 a share. Now? Now it's selling for $325 a share.
Here's the next problem: remember the short traders? They still have to buy that stock back but since its price is 80 times higher than it started out, they have to buy the stock back for way more than they originally sold it. That's the problem with short sells: the potential risk is infinite. Which is exactly what Wallstreetbets wants. A lot of the people in it are very specifically saying they're holding. They WANT to take down hedge funds. The hedge funds, on the other hand, are just waiting to sell their stock for the prices to go back down. Reddit has a couple of big advantages. First, interest payments are piling up on the hedge funds. If they have to wait a year to cash out, they also have to pay a years worth of interest and that's going to get pricey. But there's another advantage reddit has: Motive.
See, everyone here kinda knows Wallstreet has been screwing over main street for decades. The most glaring example would probably be 2008 when they all got bailed out for playing hot potato with home loans and a lot of people wound up homeless. But this isn't the first time it's happened. The general feeling has been that Wall Street has been financially screwing over everyone else, so everyone else finally decided to band together and beat Wall Street at their own game. The redditors aren't out for money; they're out for blood and they're getting it.
Melvin Capital already lost 30% of their fund and this isn't over. The redditors are still holding onto their gamestop stock, some saying they'll sell when it hits $1000 a share. They're pulling the same trick with other short selling companies like Nokia, AMC and even Blockbuster. Hedgefunds have been trying to do something to stop them, but what can they do? They've spent so much time and effort to make the stock market as unregulated as possible, so there aren't a lot of rules they can use to stop them. What few attempts they have made, trying to force stock trading aps to sell or restricting the buying of volatile stocks has netted them lawsuits for market manipulation. They're putting out article after article after article, all written by investment bankers, trying to tell people to pack it in and stop gaming the market against them. The redditors are just laughing at it.
I guess it's just a question of how this will end.
I live on facebook. Come see me there. http://www.facebook.com/tara.rizzatto
"If you cling to something as the absolute truth and you are caught in it, when the truth comes in person to knock on your door you will refuse to let it in." ~ Siddhartha Gautama
"If you cling to something as the absolute truth and you are caught in it, when the truth comes in person to knock on your door you will refuse to let it in." ~ Siddhartha Gautama
