Analysts say the stock's staggering ascent is due largely to a short squeeze, driven by a slew of individual investors who are coordinating their buying efforts on sites such as Reddit and Twitter ( NYSE:TWTR) . GameStop's stock price is up more than tenfold in 2021.
Full Answer
Why did the price of GameStop stocks jump so suddenly?
The company’s stock price has soared this year on rising enthusiasm over GameStop Chairman Ryan Cohen’s reputation and his efforts to orient the company toward e-commerce.
Should I Buy GameStop Corp. (GME)?
Investors of controversial video game retailer GameStop Corp. (GME) have bid up the share price ahead of the company's fiscal second quarter earnings announcement. At first glance, it appears that option traders are positioned for a negative move ...
How high could GameStop go?
While GameStop still has upside to $500, traders need to be aware that traditional technical and fundamental analysis has limited use in this type of a situa...
Why did GameStop stock rise?
GameStop Corp. (NYSE:GME) shares, rose in value on Thursday, February 17, with the stock price down by -3.83% to the previous day’s close as strong demand from buyers drove the stock to $123.41. Actively observing the price movement in the last trading ...
What made GameStop stock go so high?
Melvin Capital and Citron were two of the funds caught in the squeeze, forcing them to buy more GameStop stock to cover their losses, which ended up driving the stock price even higher.
Why is GameStop stock rising so fast?
GameStop shares skyrocketed in January as retail investors, urged on by popular Reddit forum WallStreetBets, bought the stock as a way to punish hedge funds that had taken an outsized short bet against it.
Why did GameStop stock go up in 2020?
The company's stock price picked up toward the end of 2020 and gained steam after GameStop announced on Jan. 11 that Cohen was joining its board of directors — a sign that maybe the game company could turn things around. It jumped from $19.01 a share at closing time that Monday to $31.40 two days later.
Who made money on GameStop?
One veteran who said he made millions on GameStop was Bill Gross, the retired “bond king” and former star manager at California money management giant Pacific Investment Management Co.
Why did GameStop stock skyrocket in 2021?
In the case of GameStop, a deliberate campaign was arranged via social media (particularly Reddit) for individuals to purchase GameStop shares, thus driving the price higher. As a result, some estimates place the loss to institutional investors in January 2021 alone at around 20 billion U.S. dollars.
What caused the GameStop short squeeze?
The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated.
What is GameStop scandal?
There's was also a lawsuit filed on Jan. 28 in the Southern District of New York accusing Robinhood of "purposefully, willfully, and knowingly removing the stock 'GME' from its trading platform in the midst of an unprecedented stock rise ... deprived retail investors of the ability to invest in the open-market."
How long did the GameStop short squeeze last?
GameStop is an American video game and gaming merchandise retailer, the shares of which closed at under $20 per share on January 12, 2021. In around 10 trading days, a series of short squeezes occurred making the stock price jump over 15 times, eventually resulting in a stock price as high as $500.
What hedge fund lost money on GameStop?
In fact, one hedge fund called Melvin Capital lost so much money on its GameStop short positions that it needed a capital infusion of nearly $3 billion to shore up its finances. And GameStop isn’t the only stock that has seen this kind of tug of war between retail investors and hedge funds lately. A few others include:
How much is GameStop stock worth in 2021?
GameStop stock rose from $17.25 on the first trading day of 2021 to $347.51 earlier this week. That’s an increase of about 1,900%.
How many stores does GameStop have?
GameStop (NYSE: GME) is primarily a bricks-and-mortar video game retailer with more than 5,000 stores. But this business model is frowned upon by many in the investment community due to both long-term and short-term factors. Long-term, fewer and fewer gamers actually journey out to physical stores to purchase their games.
Did hedge funds bet against GameStop?
Several major hedge funds looked at GameStop’s books and decided that the company was doomed to fail eventually. So they bet against GameStop stock by shorting it. That means they borrowed the stock and sold it, hoping to buy it back later (and return it to the stock lender) after the stock price fell.
How much did the company lose in 2020?
The company had a net loss of $18.8 million, or 0.29 per share.
Is GameStop a small company?
In addition, GameStop is by all accounts a small company when you look at its sales and earnings numbers. The retailer of video games is also struggling financially. Sales are falling at a 30% annual rate.
Who owns GameStop stock?
Despite GameStop’s bleak outlook, last year a well-known investor named Ryan Cohen increased his holdings of GameStop stock to more than 10% of the company, with hopes of transforming the mainly physical retailer into more of an online player.
What forum was integral to the rise of GameStop stock?
The Reddit forum WallStreetBets was integral to the rise of GameStop stock.
Why did Robinhood decide to stop trading?
In an attempt to rehabilitate its image, Robinhood attempted to explain that the decision was strictly based on financial distress. The volume of trades exhausted Robinhood’s resources, and trading had to be restricted to stay in compliance with regulatory requirements.
What is a citron short report?
Citron is best known for its “short reports”, which demonstrate through research and analysis that specific companies are likely to lose value.
What is the Musk word for stock?
Musk sent out a Tweet to his 44 million followers with just one word, “Gamestonk”, and a link to the WallStreetBets forum on Reddit. “Stonk” is a slang term for “stock” that is popular on forums like WallStreetBets, and his use of the term signified solidarity.
What is short squeeze?
This technique – forcing investors in short positions to buy shares at higher prices – is known as a “short squeeze”.
Does Robinhood sell GameStop shares?
Robinhood removed the option for members to purchase more GameStop shares, along with a list of approximately 50 other popular stocks. In some cases, members reported that Robinhood forced the sale of their shares or cancelled outstanding orders.
Did hedge funds lose billions on GameStop?
Hedge funds lost billions after betting that GameStop prices would go down, and the market as a whole had its worst week since October 2020. Retail trades were coming in so quickly that commission-free investing platform Robinhood had to limit buys for many of its members, prompting furious responses – and at least a dozen lawsuits. ...
How much did Porsche make in the hedge fund squeeze?
This set off an incredible squeeze in which Porsche made ~$10 billion and hedge funds lost $30 billion. Hedge funds cried foul and Porsche's former CEO Wendelin Wiedeking and ex-CFO Holger Härter were charged with market manipulation, but were ultimately acquitted. Porsche beat hedge funds at their own game and likely prevented their own bankruptcy in the process.
What is a counterparty in call options?
When investors purchase call options looking for leveraged gains, there is a counterparty - someone on the other side of the trade. In some cases, that counterparty is long GME stock and is selling a covered call, trading away upside in exchange for additional income/premium.
Why is the interest rate higher in a short position?
But in general, the interest rate is higher when the demand to borrow shares is greater. So the carrying cost of holding a short position in a heavily shorted name can make it less appealing to short sellers.
What happens when you short a stock?
If you believe the shares of a company will fall, you "borrow" shares via your broker, sell them immediately, and then hope to "return" them by buying them back at a lower price, keeping the difference.
What is gamma squeeze?
Gamma squeezes are a more recent phenomenon, fueled by the popularity of options, especially with the relative ease at which newer investors have access to them through brokers like Robinhood. The mechanics are different, but themes are similar: forced buying and a feedback loop.
What is the maximum loss of a stock?
When owning, or being long, a stock, your maximum loss is the amount of your investment. As long as you're not using margin, you can own a stock for forever and can't be forced to sell. If you believe a stock is undervalued, you having the luxury of time for the market to appreciate it and the stock to hopefully rise.
Why is short interest above 100% rare?
In practice, this is rare, for several reasons. The greater the short interest in a stock, the higher the risk of a short squeeze. Many investors will avoid "crowded shorts" for this reason. Most brokers charge interest on borrowed stocks.
What is Thinknum data?
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales , and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.
How much has GameStop increased in 2020?
GameStop’s weekly page views per million users spiked over the last several months, peaking at a 409% increase compared to January 2020. Today, it’s sitting at a 118% increase. These are impressive numbers for a company that was otherwise widely seen as in the midst of a long, slow decline.
Why did people download Robinhood?
Many of the people who downloaded Robinhood or Acorns during the pandemic did so as the nation was hemorrhaging jobs and income streams were cut off. But even as they lost their livelihoods, the stock market kept climbing upwards, piercing the heavens and unfazed by the droves of unemployed Americans. To many of these people, riding the wave was their way out of a terrible situation; maybe with a few well-placed investments, they could make it big in their time of need. How hard could it be?
Is GameStop a good company?
By most metrics, GameStop is not a company most people should invest in. For years now the company has been in a death spiral brought on by a shift in the way consumers purchase and play video games. Just like the advent and growth of streaming services has caused many to lament the end of the DVD, the rise of digital storefronts has led to a decline in the purchasing of physical game copies.
Did GameStop make a big announcement?
So, no , GameStop did not make any big announcement or big change that would cause its stock to spike or rapidly climb the way it did today and in the past week. The rally was driven almost entirely by a community on Reddit called r/wallstreetbets.
An army of individual traders is battling short sellers -- with the help of Elon Musk and Chamath Palihapitiya
Joe honed his investing skills as an analyst for Stock Advisor. He battle-tested his investment philosophy and strategies as portfolio manager of Tier 1, a market-crushing Motley Fool real-money portfolio that delivered 24.58% annualized returns.
What happened
Shares of GameStop ( NYSE:GME) extended their torrid recent gains on Tuesday. By the close of trading, the video game company's stock price was up a stunning 92.6%.
So what
GameStop's shares are now up more than 1,000% since the beginning of the year. Analysts say the stock's staggering ascent is due largely to a short squeeze, driven by a slew of individual investors who are coordinating their buying efforts on sites such as Reddit and Twitter ( NYSE:TWTR) .
Now what
As of 6:20 p.m. EST, GameStop's shares are up an additional 40% in after-hours trading. The sharp upward move followed a tweet by Tesla CEO Musk that linked to a popular Reddit message board, which many GameStop bulls have used to promote the stock.
Why did Gamestop stop trading?
Driving the price up was seen as a way to force hedge funds into an uncomfortable position. The volatility of the stock prompted Robinhood, one of the major brokerages on the market, to halt trading of GameStop stocks. This outraged many traders, who believed that the move was actually motivated by Robinhood’s ties to a major hedge fund.
Is GameStop a viable investment?
Several unrelated posts on Reddit around the end of January 2021 brought up GameStop (GME) as a potentially viable investment opportunity. Despite reports predicting that the value of the GME stock was about to decline, users rallied around the stock and started investing in it.
Is tech stock good for investing?
Tech stocks are not the only options available for investing, but they certainly have their attractive factors. The market is in a great state right now, and it’s been drawing in lots of new investors. The pandemic has been a major compounding factor for the popularity of trading as a whole.
Does hype around stocks die down?
Analysis of trading trends indicates that most of the hype around the stock seems to have died down, and trading activities have mostly returned to normal. A large number of people are still holding significant volumes of stock with no apparent intention of selling it. But this doesn’t seem to have affected the stock’s position in the market much.
Who bought Gamestop call options?
The short squeeze has even caught the attention of Tesla CEO Elon Musk and venture capitalist Chamath Palihapitiya. On Tuesday, Musk sent his 43 million Twitter followers a link to a popular Reddit message board that many traders have used to hype GameStop's stock. Palihapitiya, meanwhile, went so far as to say on Twitter that he bought GameStop call options, which is essentially a leveraged bet that its stock price would continue to rise.
Is GameStop up in 2021?
GameStop's shares are now up nearly 1,700% so far in 2021 -- and it's still January. An epic short squeeze is believed to be fueling the rally -- one led by an army of individual traders that are using social media sites like Reddit and Twitter to coordinate their strikes against short-sellers.
Who is Joe from Fool One?
Joe honed his investing skills as an analyst for Stock Advisor, Supernova, and Fool One. He battle-tested his investment philosophy and strategies as portfolio manager of Tier 1, a market-crushing Motley Fool real-money portfolio that delivered 24.58% annualized returns during its existence. Now, Joe’s mission is to pass on what he’s learned -- and what he continues to learn -- as a contributing writer to Fool.com. Follow @Tier1Investor
