It’s one of the craziest Wall Street battles in years. Retail investors, fueled by social media chatter, have been dueling with hedge funds over the price of fading video game seller GameStop.
The tussle broke out earlier this month when retail investors on a Reddit social media forum began hailing GameStop stock as a winner even though the company seemed to be going the way of Blockbuster. This caused the share price to soar, leaving hedge funds who had bet against the stock in a short squeeze—forcing them to buy GameStop shares to cover their position, and driving the price still higher.
All of this has left market watchers transfixed as GameStop shares have pinged around crazily from $60 to $300, and battered some familiar Wall Street names—including hedge fund Melvin Capital and Citron, which on Tuesday threw in the towel on their short position after massive losses. Meanwhile, Tesla CEO Elon Musk added to the craziness with a tweet linking to a Reddit forum that drove GameStop shares up still higher:
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
Gamestonk!! https://t.co/RZtkDzAewJ
The chaos has also spurred a flood of commentary from market watchers, including the influential Bloomberg columnist Matt Levine, who concluded “GameStop is just a game” and that assessing its value is pointless because “it has all the prices at once.”
Others took glee in pointing out the misery of the hedge funds, noting the irony in the masters of Wall Street getting whupped by a pack of Reddit yahoos:
Various hedge funds are still short tens of millions of shares of GME. They are having a bad day
— zerohedge (@zerohedge) January 27, 2021
Various hedge funds are still short tens of millions of shares of GME. They are having a bad day
“Wall Street Bets” on Reddit has put more fear into hedge funds than Occupy Wall Street, The Squad, @BernieSanders, and higher capital gains taxes combined. #GME
— ((( Lawrence Lewitinn, CFA))) (@lvlewitinn) January 27, 2021
“Wall Street Bets” on Reddit has put more fear into hedge funds than Occupy Wall Street, The Squad, @BernieSanders, and higher capital gains taxes combined. #GME
The Left and Right populists are both celebrating the crushing of Hedge Funds by WallStreetBets with GME stock and I love it
— Tim Pool (@Timcast) January 27, 2021
The Left and Right populists are both celebrating the crushing of Hedge Funds by WallStreetBets with GME stock and I love it
Meanwhile, the GameStop boosters on Reddit hailed their apparent victory over the Wall Street establishment. Their ranks include a self-styled analyst figure who goes by the name Roaring Kitty, and looks like this on YouTube:
Others took a more serious view of the events, warning that those promoting GameShop on social media could be engaged in an illegal pump-and-dump scene:
It’s far from clear though that there is anything illegal about using social media platforms to cheer on an irrational stock rally. The New York Times‘ DealBook summarized the potential legal issues at play as such: “If a big group of traders simply decides to buy options on a stock at the same time, out in the open, for the heck of it, proving malfeasance may be difficult.”
The Times also noted that much of the GameStop craziness has been driven by the options trade, which has forced market makers to buy shares of the company to cover their exposure. One analyst, using the Greek lingo of options traders, described the situation as a “gamma squeeze.”
The tech press, meanwhile, noted that the mad trading has resulted in even more new investors pouring in, and boosted the popularity of retail trading platforms like Robinhood.
As r/WallStreetBets causes GameStop, BlackBerry, and others to surge, online trading platforms like Robinhood and WeBull have rapidly climbed US app store ranks (@ryan_browne_ / CNBC)https://t.co/9iiyODhBrWhttps://t.co/i1RWnNAMEt
— Techmeme (@Techmeme) January 27, 2021
As r/WallStreetBets causes GameStop, BlackBerry, and others to surge, online trading platforms like Robinhood and WeBull have rapidly climbed US app store ranks (@ryan_browne_ / CNBC)https://t.co/9iiyODhBrWhttps://t.co/i1RWnNAMEt
Others took a more philosophic view, noting that GameStop is far from the only stock that has received an irrational boost from retail investors—and suggested a possible link between these stocks:
GameStop, BlockBuster, Bed Bath & Beyond, AMC… it’s like some kids remembered their favorite places in the mall 20 years ago and decided to invest in them pic.twitter.com/QOB8vLtOKk
— Mike Murphy (@mcwm) January 27, 2021
GameStop, BlockBuster, Bed Bath & Beyond, AMC… it’s like some kids remembered their favorite places in the mall 20 years ago and decided to invest in them pic.twitter.com/QOB8vLtOKk
Update: The GameStop craziness has led some brokerages to limit their clients ability to purchase some of these stocks:
Breaking 🚨 @CNBC
— Kate Rooney (@Kr00ney) January 27, 2021
TD Ameritrade restricting client trading for GameStop, AMC and other securities “in the interest of mitigating risk for our company and clients”
Decisions made “out of an abundance of caution amid unprecedented market conditions and other factors”$GME $AMC
Breaking 🚨 @CNBC
TD Ameritrade restricting client trading for GameStop, AMC and other securities “in the interest of mitigating risk for our company and clients”
Decisions made “out of an abundance of caution amid unprecedented market conditions and other factors”$GME $AMC
And the situation has even drawn the attention of the White House:
Biden team is "monitoring the situation" around GameStop.
— Jennifer Epstein (@jeneps) January 27, 2021
Biden team is "monitoring the situation" around GameStop.