GameStop to the Moon

What’s with all these rocket ship emojis and why is Jim Cramer shouting even louder than usual? Here’s everything you need to know about the GameStop stock and why everyone is talking about it.

GameStop's Steep Stock Rally Lives Another Day as Shorts Give Up

So why is Game Stop’s (GME) stock currently trading at about $350, an all time high just slightly above the $17 it traded for this time last year? Basically, some Wall Street hedge funds, most notably a firm called Melvin Capital, decided to short about $5 billion of GME.

(“Wait, explain shorting a stock to me like I’m five.” Shorting a stock is when someone borrows a stock from someone else and sells it in hopes of seeing a price drop so that they can buy it back at a lower price, return the original stock to the lender, and pocket the difference. Say Melvin & friends borrow 1 GME stock from Joe and sell it on Monday for $20. Melvin is then banking that GME will drop below $20 before Friday, when he has to return the stock to Joe. If GME drops to $18 before Friday, Melvin can buy it back at that price, earn $2 off the deal, and then return the stock to Joe.)

GME’s price dropping seemed to be a relatively safe bet considering no one has gone to a retail store in about 10 months or bought a physical game in about 10 years. However, a couple of things broke the wrong way for Melvin and he accidentally lost billions of dollars. Whoops. Most importantly he broke the cardinal rule of the internet, don’t mess with reddit. The subreddit r/wallstreetbets caught wind of the short and unleashed a bear? bull? animal. Wall street bets is a community of mostly young, amateur, high rolling investors. They typically share trading advice, memes, and revel in each other’s huge gains and losses, but news of the GME short inspired an unprecedented phenomena. The group decided to “short squeeze” GME, they artificially drove up the price of the stock by buying it in droves and forced the hedge funds who held the shorts to sell at massive losses. (Melvin owes Joe his original stock on Friday regardless of the current price, so if GME is suddenly $30, Melvin is forced to swallow the $10 loss and buy back the stock.)

There were a plethora of reasons why the subreddit decided to randomly pump up GameStop’s stock price. Some hated that the big guys were driving a beloved franchise into bankruptcy, some hated the hedge funds for their constant stock manipulation at the expense of the average investor and saw this as their chance for retaliation, some were hoping to make a quick buck, and some were just in it for the meme. Whatever the initial reasoning was, GME took off and sent the internet into a frenzy. Elon Musk, who apparently had beef with Melvin for repeatedly shorting Tesla, tweeting his support did little to quell the hysteria.

Whether they were trying to take a moral stance and fight back against Wall Street greed or just got caught up in the hype and didn’t want to miss the action, people kept buying GME and pushing its stock price to astronomical levels. As the stock price kept shooting higher, more people noticed and bought in which in turn sent the price even higher. When the hedge funds saw the price shooting up, they panic sold their shorts to minimize their losses, again sending GME higher in the process. The snowball effect was incredible to witness and resulted in a truly ridiculous, hilarious, awe inspiring $370+ peak stock price for the struggling video game retailer and massive potential profits for the redditors who bought in early. 🚀🚀🚀

The establishment-the SEC, Wall Street, and CNBC, among others-was… less than pleased. They took to the airwaves to complain of stock manipulation, they wrote articles talking down to the amateurs about their unprincipled tactics, and they conveniently shut down the wallstreetbets Discord server in the middle of the Jan 27 spike.

The most prominent retort from the masses can be summarized as this, “You’ve been doing this for years- manipulating stock prices behind closed doors, insider trading, and making money even while the average American suffered in depressions, housing crises, and a pandemic. We’re playing by your rules and now you’re upset just because the public is affecting the stock price for a change?”

Wall street bets, historically, placed the emphasis on the bets; the game was the rush and the prize was the money, but this time seemed different. This mission, especially as it progressed and gained more and more traction, took on an ideological meaning. It became important and emotional. It brought up memories of the callous and flippant attitude the banks had towards people in 2008, it dredged up memories of instantaneous billion dollar bailouts for the rich and the conversely laborious congressional debates about whether we deserved $600 stimulus checks; it became us against them.

In short, we’ve witnessed a historic series of events. It will be fascinating to watch the standoff continue to unfold to see which side blinks first, as well as the long term ramifications of such an event. The subreddit is already attempting short squeezes and artificial inflations of other stocks like AMC and BB and there have been rumblings of the federal government contemplating new regulations in response to the incident. Ultimately, however, the GME bubble will burst and its stock price will return to the rivers and the lakes that it’s used to. What will not go away nearly as quickly is the belief that regular people banding together can truly take on a giant and live to tell the tale. While the memes have been great and the profits incredible, perhaps the biggest takeaway of the ordeal was the proof of concept of what the masses can do when they organize effectively towards a single goal.

In conclusion, money is made up, the stock market is fake, and teamwork really does make the dream work.

Quotable QuotesTM

  • “Banks have given us 25% interest on credit cards, they have screwed us on student loans… then those same banks got greedy, they lost track of the market, and I can profit off of their stupidity? Yeah, I want him to be right.” -The Big Short
  • “Oh no the wrong people are making money off of stocks” -The Internet

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