Edge

Here’s Why GameStop Continues To Cause Chaos In The Stock Market

GameStop’s business model hasn’t changed in recent weeks, certainly not enough to make the game and accessories retailer any more valuable than it was at the start of 2021. The company sells video games and Funko Pops, and it will give you at least 34 cents for that copy of Madden 04 that you’ve been using as a coaster since the second Bush presidency.

But the company’s stock price has become wildly volatile in recent days, thanks to day traders on Reddit pumping tons of money into the retailer on the market. That, in turn, has seen larger financial companies betting against these buyers in anticipation of the stock failing. Friday alone saw a huge spike in the company’s stock price, but on Monday, it continued in an even bigger way, causing waves once more in the financial industry.

Clearly this movement was not tied to anything the actual company was doing. There was no big announcement that improved or erased consumer confidence. Just a bunch of people coordinating online to buy stocks. When you see the growth of the stock spread out over the course of years, it really is stunning to see the exponential growth.

But just as quickly as it rocked up to $150 a share, the stock had crashed to half of that by Monday afternoon.

As Bloomberg laid out, much of that movement was caused by the Reddit forum WallStreetBets, and some on there have made huge amount of money in the rise and fall of GameStop stock. And there’s a lot more involved than people simply buying a lot of stock of a company that’s fallen on tough times in recent years. Those in the subreddit had been eying GameStop for some time, and a number of market factors and more traditional economic players criticizing the moves eventually made those on WallStreetBets even more willing to buy into the stock to prove them wrong:

As shares began their steady rise during the last four months of 2020, more and more users joined the bandwagon. And as part of their welcome party they were reminded of the code of conduct: never sell, never surrender. Or in WallStreetBets parlance, only buy if you have diamond hands.

Along the way WallStreetBets began calling out those on the other side of the trade.

That sense of unity, and rebellion against the people who have financial power, has worked in a big way. According to Business Insider, those who were betting against GameStop have lost huge amounts of money in a short period of time.

Mark-to-market losses for GameStop shorts on a year-to-date basis reached $3.3 billion when trading closed on Friday, according to data from the financial-analytics firm S3 Partners. Losses totaled nearly $1.6 billion on Friday alone as shares rocketed 51% higher into the close.

Online posts urging other investors to join the trade have since driven outsize bullish momentum for GameStop. The stock traded 115% higher as of 10:40 a.m. ET on Monday and is up more than 500% year-to-date.

It’s a trend that will sound very familiar to anyone who has actually bought and sold a game at GameStop:

Brandon Kochkodin’s piece on Bloomberg has a much more thorough breakdown of the subreddit’s campaign over the last year or so, including some screenshots of Redditors loosely organizing and showing off their big profits. But it’s fascinating to see real-world implications of some day traders banding together online, apparently in the hopes of sticking it to financial gurus who claim they know far more about the market. A market that, suddenly, they’re struggling to keep up with.

(Via Bloomberg & Business Insider)

×