GameStop stock was suspended from trading on Monday because it rose too fast.
Editor’s note: This article comes from Tencent Technology, review: Jiao Han.
On January 27th, according to media reports, online stock market participants formulated a plan to make the once worthless GameStop stock rise rapidly, and it worked. Subsequently, Elon Musk, CEO of electric vehicle manufacturing company Tesla, posted news about GameStop stock on his personal social media, causing the stock price to continue to push up in after-hours trading.
GameStop is not just a store selling video games, it is also one of the biggest bets that Wall Street traders have recently placed, and almost everyone expects it to fail. Until Monday morning, a group of Reddit users decided to make a market, pushing GameStop’s stock price to nearly three times the average price in the past few months.
It all started last week when WallStreetBets, the Reddit stock trading chat community, released a poster in an attempt to push up the stock price of the struggling gaming retailer. Since most traders on Wall Street are betting that GameStop will not succeed, investors in the WallStreetBets community believe that they can drive the market to rebound by creating demand that was almost absent before.
As a result, GameStop’s share price rose by more than 822% on Monday, local time, from 17.25 US dollars at the beginning of the year to a high of 159.18 US dollars. The stock price then fell by nearly half, but it rose to $147.98 on Tuesday. On Tuesday, local time, Tesla CEO Musk posted a message on his personal social media that “Gamestonk!” This news undoubtedly contributed to the stock price. GameStop’s stock price rose 40% in after-hours trading.
The Reddit community has also set its sights on BlackBerry, trying to use the same strategy to push up the stock price of the once-popular smartphone manufacturer. So far, they have more than doubled the BlackBerry stock price from $6.58 at the beginning of the year. On Tuesday, local time, BlackBerry shares closed at $18.92.
How could this be?
GameStop is one of the largest electronic game retailers in the world, but in this era when all products can be sold online, it is difficult for GameStop to maintain its market position.
In fact, this group of people in the WallStreetBets community artificially created market demand for GameStop and BlackBerry stocks. There are currently 2.2 million users in the WallStreetBets community, but it is almost impossible to determine how many people participated in the plan to increase the share price of GameStop and BlackBerry.
If you quickly buy a large number of shares of GameStop, the stock price will definitely rise. this is normal. However, GameStop stock also has many short sellers, or those who are actually betting that the stock will fall rather than rise.
The problem is that if the price of GameStop’s stock rises too fast, short sellers who bet that GameStop’s stock price will fall will be forced to buy more stocks to make up for their losses. This in turn pushed up the stock price further.
This is why GameStop’s stock price suddenly soared.
What is a short seller?
When people buy stocks normally, they are betting that the stock will rise or bring sufficient profit sharing for themselves, so that the cash out will exceed the money they invested.
Short sellers do exactly the opposite. They will trade the borrowed stocks, and then buy them in the future and return them. If the stock falls in the future, they can make money.
Suppose there is a public company whose stock is worth $10. “Short sellers” would borrow company stock and sell it for $10. They bet that the stock price of this listed company may fall to $4. If this is the case, then they can buy the stock for $4 and take the remaining $6 in their pockets.
But if the stock price of this listed company rises to $25, the corresponding lender may require short sellers to cover. This would mean that short sellers must actually buy these stocks at a higher price.
When the stock moves in line with expectations, short a company can make a lot of money. But if they are wrong, they will also lose more money.
There are other options and tools to short a company.
How much did GameStop’s short sellers lose?
The loss seems to be huge. According to relevant media reports, short sellers have lost $3.3 billion in shorting GameStop stock so far this year. Of these losses, $1.6 billion, or about half, occurred last Friday, when the company’s stock price soared 51%.
It is worth noting that GameStop has been one of the most short-selling company stocks in the market since the beginning of the year.
This seems to be a lot of money
It is true, but what may be more telling of how dramatic investors are that these moves are that GameStop stock was suspended from trading on Monday because of the rapid increase.
This crazy fluctuation will not last forever?
Part of the reason for this behavior is that more and more retail investors are investing, or the proportion of Wall Street professionals buying and selling stocks is getting smaller and smaller. Stock exchangeEasy apps usually do not charge intermediate fees, which makes it easy for people to enter the stock market to invest. And social media brings people together and encourages each other to buy more of a certain stock.
There was a report on Monday: “GameStop’s rise is one of a series of high-profile market moves that have raised concerns among fund managers. Some fund managers said that individual investor transactions are pushing stock prices away from fundamentals. “
How does the company view all this?
GameStop did not respond to reporters’ requests for comment. BlackBerry executives said they “do not know” any reason for the recent trading activity. Earlier this month, BlackBerry did reach a settlement with Facebook over a patent war, but the terms of the agreement were not disclosed.
Why should Musk get involved?
Musk is an influencer on personal social media. Not only does he frequently tweet, but he also recently discovered that he can encourage people to buy shares in different companies. He once said on personal social media how much he likes to buy headgear for his dog on Etsy, and the company’s stock price rises accordingly. Now he has posted news about GameStop on his personal social media, causing the company’s stock price to soar further.
Should ordinary retail investors try to join this craze?
It is still wise to consult a financial professional before making an investment decision.