The GameStop stock explosion, explained
This is wild.
Welcome to FTW Explains, a guide to catching up on and better understanding stuff going on in the world. Today, we’re covering GameStop’s stock price going absolutely wild in the last few days.
It’s what I said above — you may have seen some news about GameStop and its stock price fluctuating like crazy (mostly up, for a couple of days!) or seen a chart that shows skyrocketing value.
Are you confused about a video game and electronics retail chain suddenly getting a huge boost in the middle of a pandemic? That’s where this explainer comes in. Let’s jump in with the first question:
What’s this now about GameStop?
GameStop Corp. has, per their site, over 5,000 stores across the United States with an HQ in Texas. They sell video games and hardware, along with other game-related stuff like collectibles, board games and toys.
Why are they in the news?
On Friday, their stock price began climbing steadily, starting at over $45. By the end of that day’s trading, it was up to over $61.
Doesn’t seem like a big deal. Stocks go up and down all the time?
True. But there’s an explanation for this that’s pretty wild.
Oh?
Yeah. On Thursday, an author and investor named Andrew Left from Citron Research posted a video about GameStop stock, touting that the price would fall back and would reward those who sold short on it.
That came after Ryan Cohen, who had founded Chewy, was appointed to the company’s board and there was hope he could save the struggling company. resulting in an increase in the stock price in recent days.
Left and others believed the price going up was too good to be true.
What’s that about “selling short?”
That’s a way to invest in the stock market. And the best explanation I’ve seen for it comes from The Verge:
Some investors, known as shorts, essentially bet that a company’s stock will fall. These investors borrow stock from other investors and sell it — with plans to buy it back when the prices fall and then return it to the original owner.
And when they return the stock at a lower price to the original owner, they make money off of the difference in stock price.
But what happens if the stock price goes up?
AHA! Good question! That’s what creates what’s called a “short squeeze.” From CNN:
That’s a risky strategy: If a stock suddenly spikes higher, short sellers may have to rush en masse to buy back shares or risk losing their shirts. The more that a shorted stock goes up, the bigger the losses become if a short seller doesn’t buy back (or cover) their position. That creates the squeeze.
GameStop was halted for trading after shares surged around 69% https://t.co/oHfavJPtWt pic.twitter.com/AjuPvOldPp
— Bloomberg (@business) January 22, 2021
So that’s how did the price went up so high on Friday?
Yup.
Who was investing all that money?
It’s thanks to Reddit.
Seriously?
Well, not the company. But a group of investors on r/wallstreetbets rallied together and bought into GameStop stock … and the price rose 51 percent on one day of trading on Friday, with trading halted briefly.
Left wrote in a since-deleted tweet that he and his company were harassed and threatened by investors after posting his video.
What happened on Monday?
The stock went even higher — per CNBC, it got up to $159.18 with more halts due to volatility. As of near 3 p.m. ET on Monday, the price dropped and was at around $82 per share.
Gamestop stock up 125% thanks to r/wallstreetbets
lmao pic.twitter.com/Gsu6xHgeTB
— Daniel Ahmad (@ZhugeEX) January 25, 2021
Wild.
Isn’t it?