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- GameStop’s inventory began this week with a sharpening of the board’s upheaval.
- That price action eventually exploded into an overall battle between online day traders and short sellers rejecting the stock gain.
- The short sellers – including the well-known Citron Research – have argued that prices will soon decline. But Reddit traders had other ideas because they offered the stock up to the levels that brought the trade to a halt.
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It started with a letter from Ryan Cohen, the founder of online retailer Chewy for pets, and an activist investor in GameStop.
Cohen, who also serves as a board member of RC Ventures, wrote to GameStop on Nov. 16, urging the company to turn to online sales if it wants to stay afloat. Almost two months later, Cohen got his wish. GameStop has agreed with RC to add three new directors, including Cohen, to its board.
Investors view the uproar on Jan. 11 largely as a positive factor for GameStop. Shares rose nearly 13% and the next session continued. This is exactly when Reddit picked up the flavor.
Members of the WallStreetBets subreddit stormed the stock on January 13 and praised the move, asking each other to squeeze short sellers out of their clumsy positions. GameStop closed 57% higher that day. By the close of trading on January 14, GameStop shares had doubled from two days earlier.
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‘Hold on, my bully boys, hold on’
WallStreetBets has previously targeted stocks. The community played a role in Hertz’s bankruptcy-driven rally in 2020 and recorded names including Plug Power, AMD and Nio. Tesla is a perennial favorite on the forum, in part because of Elon Musk’s unconventional humor and online presence.
Yet previous schemes to drive internet-driven momentum trading have usually died down within days. The retailers would get in, drive up a steep climb and quickly flee the stock as soon as they felt the rally collapse.
GameStop was different. Shares fluctuated around a new support level of $ 39 at the beginning of the week. At the same time, more and more posts on WallStreetBets have encouraged traders to keep selling and keep the rally alive.
One user allegedly made a $ 785,000 option position in GameStop in a nearly $ 4 million profit. Another one wrote an original seaside documenting their successful attempt to push stocks higher.
“The price has inflated, the shorts have dropped. Hold on, my bully boys, hold on,” the Quigonshin user of Reddit sang.
Tap the card
The buying frenzy escalated further on January 19 when the well-known short seller Andrew Left of Citron Research revealed his clumsy stance on the stock. Left tweeted that he would stream live on Wednesday, giving five reasons why GameStop would crash to $ 20. The stream was once delayed due to President Joe Biden’s inauguration and Thursday again due to what Left described as repeated attempts to tune in to Citron’s Twitter account.
In a Thursday video, Left Game describes Game as a ‘failed, mall-based retailer’ and mocks the online retailers that have fueled recent gains.
“The amount of people who are so passionate about raising GameStop is not based on any fundamentals; it just shows the natural state of the market at the moment,” he added.
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If GameStop’s profits lit the fire last week, it’s the subreddit’s newfound rivalry with Left napalm. WallStreetBets’ main entry was filled with postings that cut to the left, and edited the video so that it praised the retailers and appealed to the members of the subreddit to prove its clumsy thesis wrong.
By Friday morning, the WallStreetBets day traders had won. GameStop shot higher on a wave of unprecedented volatility and unwavering rumble. The climb was so rapid that the New York Stock Exchange stopped at about 12:40 ET.
At the time of the freezing point, the stock was 69% higher. After trading resumed, the stock continued to climb higher to an intraday profit of 78% before profit taking hold. At the end of the session, the stock closed 50% higher at $ 64.75.
And just ten minutes after the market opened on Friday, left tweeted he would no longer talk about GameStop due to alleged online harassment and hacking. The investor said that although he stood by his dissertation, an ‘angry crowd of shareholders’ asked him to end his comments and ‘walk away’.
Pain to come
The theory that the event was merely a brief push bumped heads with Friday data. At the end of the week, nearly 72 million shares were shorted, or about 140% of the GameStop shares available for trading, according to data from financial analysis firm S3 Partners. Over the past seven days, the shares have fallen by 883,000 shares as more investors were able to absorb the profits as GameStop sank back to earth.
Yet the extraordinary boom of Friday only intensifies the pain that GameStop bears are already feeling. Short sellers have already absorbed more than $ 3.3 billion in losses on the stock, which includes a $ 1.6 billion hit on Friday alone.
What started short is now an ‘under-grasp of loss between markets and markets that will force older and new shorts to reconsider their belief in this trade’, said Ihor Dusaniwsky, managing director of predictive analytics at S3, Business Insider in an email.
“It is likely that the short transactions will be killed without responding again,” he added.
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