GameStop shares rocketed higher again on Monday, though they ended well off the session’s highs. Shares were propelled by short investors covering their positions and by interest from retail investors.
Full Answer
Why did GameStop share price rocket higher on Monday?
GameStop shares rocketed higher again on Monday, though they ended well off the session’s highs. Shares were propelled by short investors covering their positions and by interest from retail investors.
What happened to GameStop?
For those who don't know what GameStop is, it's a store that sells game DVDs and Pokemon cards. Given the recent digital boom, people barely buy DVDs, and with COVID around, people have stopped frequenting malls. So, GameStop was dying. Seeing this opportunity, a company tried short-selling GameStop stocks.
What is behind GameStop’s rise?
Bryn Talkington, managing partner of Requisite Capital Management, laid out the relationship between the retail investors and market makers contributing to GameStop’s rise. “I think that what hasn’t been talked about is the market makers, with the GameStops and the BlackBerrys, the Reddit traders.
Is GameStop stock still a buy at all-time highs?
Since the end of January, GameStop’s Reddit-fueled surge has continued with a vengeance and volatility, though it hasn't again touched its all-time high of $483. The plight of brick-and-mortar retailers hit GameStop particularly hard over the past decade, wiping out nearly 90% of the stock's gains through the end of 2019.
What caused GameStop stock to skyrocket?
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 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.
Why did GameStop stock rally?
That made GameStop stock an attractive target for both short sellers and boosters even before the internet got involved. The report also backs up claims that GameStop was an unusually heavily shorted stock, but it disputes the claim that short-sellers were the primary reason for the continued rally.
Why did GameStop stock boom?
As retail investors began to buy up its shares and options — many of them egged on by Wall Street Bets and other forums — its stock began to surge, forcing the short-selling hedge funds to buy back the borrowed shares at a higher price, which itself pushed the stock price higher.
How did GME short squeeze start?
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.
Can GME still squeeze?
GME Is Still Heavily Shorted, A Squeeze Could Be Imminent To sum up, and to repeat what we've said in many of our GME articles over the past few months, short sellers are still playing with fire. And they know it.
How high can a short squeeze go?
If you short a stock at $10, it can't go lower than zero, so you can't make more than $10 per share on the trade. But there's no ceiling on the stock. You can sell it at $10 and then be forced to buy it back at $20 … or $200 … or $2 million. There is no theoretical limit on how high a stock can go.
How much did Melvin capital lose on GameStop?
Melvin, which lost nearly $7 billion early last year by betting on stocks like GameStop (GME.
How much did hedge funds lose on GameStop?
This article is in your queue. Gabe Plotkin wasn't sleeping. His bets against meme stocks such as GameStop Corp. GME 0.09% were backfiring, and losses at his $12.5 billion hedge fund were mounting.
What's the story behind GameStop stock?
Many people began investing in GameStop because several hedge funds have been shorting its stock. That is they borrowed GameStop stock that they sold on the market in the expectation of a price drop by the time they had to turn an equal amount of the shares borrowed to the party that lent it to them.
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."
Who is the CEO of SpaceX?
Elon Musk, the CEO of SpaceX and Tesla, hopped on the GameStop bandwagon with a single tweet that said, "Gamestonk!!". This post was enough to push the price of the company's stocks higher.
Why do hedge funds short stocks?
Stocks that have a single-digit value are potential targets for hedge fund corporations because these companies are bound to fall . This is the primary reason why they opt to short sell these stocks.
Is GameStop the hottest pancake?
GameStop is currently the hottest pancake on Wall Street. The company saw its stock value rise by 160% this Monday, probably the highest the stock has ever been in a while.
Is GameStop a good example of the internet?
Funnily enough, the rise of GameStop stocks is an excellent example of how the internet collectively can work wonders.
What happened
Reddit's army of individual investors appears to be growing ever more powerful. After taking some time to regroup and emboldened by their recent success with AMC Entertainment ( AMC -4.38% ), these traders launched a major counteroffensive on Wednesday -- one that helped to drive the prices of multiple stocks sharply higher.
So what
AMC Entertainment rocketed 95% as people ramped up their promotion of the stock on Reddit, Twitter, and other social media sites. By coordinating their purchases, these investors hope to fuel a steep rally in AMC's stock price and ignite a massive short squeeze.
NYSE: AMC
Forcing short-sellers to vacate their positions by buying back the shares they shorted can accelerate a stock's price gains. And this short-squeeze cycle can perpetuate until many short-sellers capitulate.
Now what
Stock-promotion schemes and short squeezes can bring about shocking price swings. But these moves can't continue forever. When they end -- and they always end -- investors who bought late in the rally can suffer devastating losses.
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Topline
GameStop shares plunged Wednesday after the long-struggling Grapevine, Texas-based gameseller reported earnings that failed to impress analysts, but the firm's new ecommerce push prompted one expert to release Wall Street's most bullish price target, marking the first analyst to say that a turnaround could actually justify GameStop's meteoric valuation..
Key Facts
Shares of GameStop plunged 32% Wednesday after lukewarm earnings that met analysts' expectations, wiping out more than $4.5 billion from the firm's market capitalization, which ended Wednesday at $8.1 billion.
Surprising Fact
The average analyst price target for GameStop shares is now about $25, or roughly 20% of the stock's closing price Wednesday. Despite the Wednesday plunge, shares are still up a staggering 600% this year.
Chief Critic
"Given the continuation of very challenged results for GameStop, change is needed and soon," Nagle wrote Wednesday, adding that "very little detail" on a transformation plan was given on GameStop's fourth-quarter earnings call (executives took no questions).
Key Background
Since the end of January, GameStop’s Reddit-fueled surge has continued with a vengeance and volatility, though it hasn't again touched its all-time high of $483. The plight of brick-and-mortar retailers hit GameStop particularly hard over the past decade, wiping out nearly 90% of the stock's gains through the end of 2019.
Further Reading
GameStop Posts $2.1 Billion In Sales In First Earnings Report Since Reddit Traders Fueled 2,000% Surge (Forbes)
