(After all, share prices can keep rising, while they can only fall to zero.) For that reason, when a bet goes wrong, short sellers rush to repurchase the shares they borrowed so that they can return them and exit their trades - a process known as covering. If the stock rises, the short seller is exposed to losses that are theoretically infinite. Short-selling works this way: An investor, who expects a stock price to fall, borrows shares of that company from another investor for a fee and sells it immediately, hoping that when the price does fall, they can buy the shares back cheaply, return them to the owner and pocket the difference. The company had been reeling from consumers’ shifts to online commerce and streaming, but the pandemic was bruising it further. Around the same time, some hedge funds were betting that GameStop’s stock would plummet.
“When does it end? I don’t know.”īeginning last summer, GameStop shares started to rise after an investment firm owned by Ryan Cohen - founder of Chewy, the online pet supplies shop, whose stock was popular with retail investors - bought a stake in the company and joined its board. Eventually, the bigger the balloon, the louder the pop,” said Mr. “What happens in situations of stress is that people are forced to raise funds and that often means selling your winners,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn. While this speculative frenzy played out on the market’s sidelines, the S&P 500 fell more than 2.5 percent on Wednesday, its worst day since late October, as the Federal Reserve gave a glum assessment of the economy and before a number of big tech companies announced their earnings. Some analysts say the intense activity could eventually prompt a wider sell-off in the market by forcing hedge funds on the losing side of these trades to sell parts of their portfolios to raise cash to cover their losses. “By buying GameStop, it’s kind of like beating them at their own game.” “It’s a good opportunity to make money and stick it to the hedge funds,” he said. And speculation is growing that other investors are seeing fresh opportunities to push the stock even higher.īen Patte, 16, a high school student in Wisconsin who said he made $750 off GameStop stock, said the campaign felt like vindication for himself and fellow young traders. This week, Tesla’s chief executive, Elon Musk, fueled the trading by posting about the Reddit page on Twitter. The tribal framing online, as a kind of team sport pitting plucky upstarts against well-heeled Wall Streeters, has been especially helpful in motivating more investors to participate. Between Tuesday and Wednesday, the market value rose over $10 billion.
Its shares have risen over 1,700 percent since December. That caused GameStop’s market value to increase to over $24 billion from $2 billion in a matter of days.
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While the hedge funds and other professional money managers had been shorting GameStop’s shares, betting that its stock was doomed to further decline, the retail investors - online traders, mom-and-pop investors, small brokers and others - have been pushing the other way, buying shares and stock options. But in recent days, individual investors - many of them followers of a popular, juvenile, foul-mouthed Reddit page called Wall Street Bets - have upended that narrative by banding together to put the squeeze on at least two hedge funds that had bet that GameStop’s shares would fall. On Wall Street, individual investors are often derided as “dumb money,” destined to lose against the highly compensated analysts and traders who buy and sell stocks for a living. But the trade that captures the David-versus-Goliath nature of the moment involves GameStop, the troubled video game retailer that was once a fixture in suburban malls.
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Stock in AMC, the movie theater chain, has surged nearly 840 percent.
BlackBerry’s shares are up nearly 280 percent this year. Some of the names are from an earlier business era. Propelled by a mix of greed and boredom, gleefully determined to teach Wall Street a lesson, and turbocharged by an endless flow of get-rich-quick hype and ideas delivered via social media, these investors have piled into trades around several companies, pushing their stock prices to stratospheric levels. They are among the millions of amateur traders collectively taking on some of Wall Street’s most sophisticated investors - and, for the moment at least, winning. A high school student in the Milwaukee suburbs. An evangelical pastor and his wife in Huntington Beach, Calif. A real estate salesman in Valparaiso, Ind.
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