A Nightmare on Wall Street: The GameStop Stocks Taken to The Moon

  • 1st Feb'21
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Gamestonk!! - Elon Musk

If this was a movie from which it borrows the title, then Freddy Krueger must have felt defenceless even in our dreams with what went on with the GameStop stocks. To quote another movie, subreddit r/WallStreetBets became the "Jordan Belfort of The Wolf of Wall Street".

So, what went on with the GameStop stocks and Reddit (A few more players involved) that shook the core of Wall Street last week? To learn about it all, let's start from the beginning.

 

Gamestop Stock

 

What is GameStop?

GameStop is a US-based video game retailing shop that sells games, consoles, and other electronic devices. It is the kind of shop which you could find at many malls across the United States of America. With the pandemic, GameStop wasn't doing well as most people went towards online shopping rather than driving to places to buy their kinds of stuff. Even several Wall Street analysts considered that the company was outdated and now is doomed.

 

Reddit Gamestop

 

What does Reddit have to do with the GameStop?

For those who don't know about Reddit is like Facebook and Twitter. It is a social site where people join forums of their preferred topics. And one such forum with the subreddit r/WallStreetBets has almost 4 million people joined in it. People here usually discuss topics related to stock markets like where to invest the money. Now, you may think how this has anything to do with GameStop?

Well, here is the thing. As mentioned, because of the pandemic GameStop wasn't thriving at all and its shares value was continuously falling. With the words on it across Wall Street, several short sellers took part in it to make quick gains over a dwindling company. This prompted Keith Gill, a guy who goes by the name "Roaring Kitty" on Reddit to take on those short sellers and punish them for their deeds. So, what is Short Selling, and how Roaring Kitty took on these short sellers?

 

What is Short Selling?

Short Selling in the stock market is a common practice where an investor sells the borrowed share and hopes the share prices go down. Once the share price declines, the investor buys back the borrowed share at a cheaper price and returns it to the owner at the exact price he borrowed it at while keeping the difference in amount. Thus, making quick small profits. In simpler words, short selling is like betting on a company to fail. Here, at GameStop, several hedge fund giants of Wall Street were short selling their shares.

 

WallStreet Gamestop

 

How Roaring Kitty tamed the hedge fund Giants of Wall Street?

Before getting into the How part, let's learn about the why part first. Roaring Kitty was a casual gamer, TikToker, and a YouTube, Twitch streamer who had invested $53,000 in the GameStop company back in June 2019. He did so because he thought there is a huge potential for the company to grow in the coming. He even shared the details on his investment on the subreddit r/WallStreetBets and his social media platforms where many warned him against the doing or how he made the wrong gamble.

But Roaring Kitty aka Keith Gill stood his ground against people's advisories. And when he came to know about the short selling activities of the Wall Street giants, he decided to take on them to safeguard his interest and belief in the company's potential in a classic "David versus Goliath" showdown.

He rallied against the short selling activities on the GameStop through a Reddit post on the subreddit r/WallStreetBets where a small group of individual investor and hordes of young amateur online trader formed a "Reddit army" to take GameStop stocks on a wild ride against the sophisticated giants of the Wall Street by creating a short squeeze.

As a result of this, GameStop's share prices rose like a wildfire across Wall Street forcing the hedge fund giants and other short sellers to buy back the GameStop shares at an astronomically high price incurring heavy losses which further increased the share values of the stocks. Many of Gill's fans and other traders were so dedicated to the cause that they spent hours each week chatting and discussing the event on Gill's Reddit thread. So much so that Gill's $53,000 invested in the company has now soared to $48 million in shares value and the Reddit post has now been "upvoted" by more than 140,000 times by other users.

 

What is Short Squeeze?

Evidently, after seeing the short squeeze mentioned in this historical act, a lot of you must wonder about what short squeeze means. In the stock market, the only way to counter short sellers is by investors buying stock to drive its costs higher, thus forcing the short sellers to buy back shares at higher prices to forestall even greater losses. This process is known as the short squeeze.

 

Robinhood Stock Trading App

 

What Role Robinhood App Played in the Whole Showdown?

Besides GameStop and Reddit, the other word that has trended the utmost in the past few days is "Robinhood". Thinking what is Robinhood here? It's the cost-free trading app that became the weapon of choice after the Reddit community banded together to punish the Wall Street giants who had bet against the GameStop.

The day traders used this app to short squeeze the beaten down GameStop stocks by 14,300% higher over the past months, thus making the short selling investors "cry a river" in pain. With this app being the weapon of choice, its popularity witnessed an enormous rise on Wednesday where it jumped straight to the top on Apple's App Store.

Though, on the very next day, its popularity took a giant hit as it has fallen from the grace of its users after it started restricting GameStop stock trading on its platform. There were several lawsuits filed against what it stood to do and was even bombarded with 1-star reviews on the App Store.

 

Must Read: Why You Should Stop This ‘Dangerous’ Update To Your Amazon Account?

 

What is Day Trading?

Before, we conclude let me share what day trading means. Day trading refers to dealing in shares (buying and selling) online inside a single day to make profits from the small fluctuations in share prices.

This took the GameStop market value into a Fortune 500 company and cornered several Wall Street investors who had faced their worst nightmare possible and are still reeling from it.

 

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Sources/References:

*Note: The content published above was made in collaboration with our members.

About the author:

Sunny Samanta, OpenGrowth Content Team

A lone wolf by definition, a writer by heart, and a lost star with ambitions to light up the dark both inside and around me, sometimes by immersing myself into books or video games or traveling with a backpack to an uncertain destination believing that life is all about the choices we make and we don't.


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