The GameStop Squeeze

Political News

An attendee uses a Nintendo Switch game console at the Paris Games Week trade fair in Paris, France, October 29, 2019. (Benoit Tessier/Reuters)

Okay, I can’t stop laughing. GameStop is a brick-and-mortar retailer that sells video games, video-game consoles, and junk. These are low-margin items, and the category is dying. Until recently, GameStop’s stock price was $4 and big institutional investors were apparently shorting the stock like crazy.

Maybe too crazily. Now, add in the the web app Robinhood, which allows users to open an account and use it for commission-free trading, including more-complex options and calls. Combine that with a growing community of day-trading and hobby investors on Reddit/wallstreetbets and in various Discord chat rooms — and suddenly an army of people armed with $500 in their accounts decided to squeeze the shorts. Some of this was accompanied with somewhat-dummy advice about how GameStop posted a surprise profit in a recent quarter, and has new people on their board.

Call it revenge of the day traders. The short-squeezers are openly parodying how they think big institutional investors pump and dump stocks and how they advise investors.

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Wall Street halted trading of GameStop after it shot through $100 and even touched $150. (Why? I presume big investors just put pressure on them). Reddit and YouTube are filling up with little videos and screenshots of people who turned their tiny Robin Hood accounts into windfall profits.

How can guys with small accounts do this? Because as they bought the stock and bought various options and option calls on the stock, the investment institutions that shorted the stock and used various options to make money on the collapse of the stock, are forced to buy more shares to cover and hedge. There is basically a chain reaction.

A lot of normal investors are horrified by this kind of thing, and think that some time after this there will be rules introduced to stop the pitchfork brigades from squeezing the shorts.

But I think the Reddit short squeeze play is a public service overall. If your institution is shorting a stock so moronically that a few dudes with tiny accounts can make you pay out millions to them in gains, you and your institution are the idiots, not them.  It’s your turn to go onto CNBC on cry, while they go to their YouTube channels and gloat!

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