How did this happen? GameStop’s stock (traded as GME) has been trending upward all January. But behind the scenes, the reasoning for the jump has less to do with GameStop’s actual business performances and more to do with a fight between short-sellers like Citron Research and the subreddit r/WallStreetBets.
GameStop in the News Timeline
Short selling is a strategy where an investor will borrow stock in exchange for an IOU. They can then sell the stock for a set price, let’s say 20 shares for $400. That stock could then lose value, and the investor can buy back 20 shares for $300. They’ll then return the 20 shares back to the original stock owner and pocket the extra $100.
Several firms have shorted GameStop, including Citron Research, a short-seller specializing in bets that companies will fail. The idea wasn’t far-fetched given the spate of GameStop’s bad news ranging from store closures to the general health of stores during the COVID-19 pandemic.
On the opposing “side” so to speak are users of the subreddit WallStreetBets and finance influencers on TikTok (or FinTok) who, through a combination of chaotic investing and savvy, predicted investors would try and short GameStop stock and made moves to profit from it.
There were also signs the market became somewhat more optimistic for GameStop after it promoted Ryan Cohen, co-founder of pet retail empire Chewy, as a board member. Cohen has spoken publicly about plans to turn GameStop into some kind of digital retail leader.
Redditors and others moved ahead of short-sellers by buying GameStop stock early when it was incredibly cheap. As short sellers moved to “cover” their short by buying back the stock they needed to return to their lenders, prices began to climb, forcing the short sellers to accelerate their buying, which in turn continued to drive up stock prices, creating a short squeeze.
Basically, it set off a chain reaction of short-sellers trying to cut any of their losses by purchasing more GameStop stock, which drove prices up even further.
There are testimonials on Reddit and elsewhere of people profiting from this sudden surge. Some have shared their GME portfolios hitting as high as $5 million USD in value.Vice and Ars Technica have excellent explainers on the full “war” between WallStreetBets and short-sellers, but ultimately GameStop’s stock success is a strange case of the wild world of speculative investing.
GameStop has declined to comment on its stock performance.
Matt T.M. Kim is a reporter for IGN.