Capturing the nation in a frenzy of greed, hope and pure speculation, the GameStop stock story has made rounds in the news for a variety of reasons. It is no secret that equity markets in the United States and elsewhere have always had the odds in favor of those who controlled a majority of the money flowing in and out of the markets, the billion dollar hedge funds. From firms like BlackRock, to Bridgewater associates, through massive financial positions these firms have been able to stay at the forefront of market moves for years, and generally carry retail trades behind leaving their scraps, until today.
On a popular social media app known as reddit, a collection of reddit retail traders noticed through information available to the public that there was a massive short position on the GameStop(A videogame retailer) stock. This short position wasn't just a massive short position of half of the stock's float(available shares to the public), this short position was at 140% of the stock's float, meaning they were short more shares than there actually were available! A short position involves when a person or entity, borrows a stock and sells it at the current price, with a promise/binding agreement to sell it back to the lender at its future price. Short sellers bet that a stock is going to go down in price, and make a profit on drops in price and lose money when the stock price goes up. With this short position information made public, redditor's saw the opportunity for the short squeeze of a lifetime, their plan was to tell their reddit thread to flood the buy button and drive the stock price up until the hedge funds with short positions decided to take their losses and cover their positions at the higher prices. With the interconnectedness of social media, the GameStop stock fiasco made its way to Twitter, Facebook, and finally national television, where people were stunned by the massive percentage gains redditor's were able to pull off. This was a massive win for retail traders in a field that has never favored them, but nothing in life causing euphoric gains like this can come without consequences.
Now with a massive win under their belts, the wallstreetbets reddit channel saw its growth skyrocket, growing from a million users to nearly 6 million over the course of the week. Now wallstreetbets was in a position they previously could only dream of, their positions and plays now had credibility to the masses. Unfortunately with a thread of 6 million people, it was virtually impossible for this to not be abused. Stocks such as BlackBerry, Nokia, and AMC among others, saw their values push to extremes after redditors on the page began pushing stock after stock telling other users to buy and not sell, eerily mirroring actual pump and dumps that have defrauded retail investors for ages. The most prime example of the wallstreetbets manipulation not favoring retail traders was in the pump and subsequent dump of a cryptocurrency coin called DOGE. After the fiasco revolving Gamestop and the havoc it wrecked on the brokerage Robinhood, many users decided the next investment they would run up would be a cryptocurrency due to the government not being able to regulate their transactions. The problem with this plan was the psychology behind the move was similar to the GameStop play. Many reddit users who ignored the technical reasons for the Gamestop move, thought that them simply buying and holding this coin would take it to extreme Bitcoin level prices. Adding fuel to the fire, Elon musk managed to fuel the frenzy by vaguely referencing the coin in a toast to the Wallstreet bets crowd. Doge coin managed to peak at a price of 8 cents before plummeting back to 2 cents, leaving many retail investors hoping for the next Bitcoin in financial ruins and confused about the process of investing in general. I think it's time to discuss Elon's role in the financial manipulation of the working class, and how this will disenfranchise retail traders and investors from markets for years to come. This saga is far from over, and will likely leave hedge funds and retail traders alike in ruins.
Indeed, GME has gone way too crazy. The reason why people are shorting it with a big percentage is becasue they think GME is not really worth the price. Though that is true, GME becomes so popular and I can hear people talking about it everywhere. In this case, I believe the large scale of public focus can be a part of its valuation. It may go down in a few days or a few month, but it will remain a higher price level before the short squeeze happened.