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Why the GameStop story is far from over

Why the GameStop story is far from over

GameStop’s shares slumped by 40% in 25 minutes on Wednesday, after a few days of frenetic growth.

Earlier that day the share price had soared to nearly $350 (£250) – 100 times more than this time last year.

What does this tell us?

  • One of the wildest stories of the year is still very much alive
  • Many amateur traders are still both making money – and getting hurt
  • Our understanding of what happened in late January, when GameStop’s share price was making headlines around the world, remains incomplete

Why is it shocking?

In February, the prevailing attitude on Wall Street was the share price was slowly finding its natural position.

It had fallen to about a 10th of its late January market high.

And that spike was widely thought to have been a one-off – hedge funds would never again allow themselves to be blindsided.

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GameStop graphic
 
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How were hedge funds used to drive up the price?

Believing GameStop overpriced, hedge funds had “shorted” the company, betting the share price would fall.

Many people on the WallStreetBets Reddit forum realised if together they drove up the price, the hedge funds would have to try to buy back shares, to cut their losses, raising the price still further.

This is known as a short squeeze.

In the past month, I have been told multiple times hedge funds were too clever to allow this again

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