- GameStop shares are trading at record highs as an army of organized Redditors takes advantage of the current context to drive up the price and beat Wall Street at their own game.
- Well over 100% of GME stock has been shorted by investment funds, but Redditors drove the price up, forcing these companies to purchase stock themselves to cover their losses. This added further demand for GME, which is trading higher than ever.
- The GME short squeeze is expected to continue well into the week, as the two factions battle for terrain. Wall Street has already drawn first blood. Hedge fund Melvin Capital, the holder of significant GME shorts, needed a $2.75 billion bailout following Monday’s trading.
GameStop stock has been on a tear recently, with an army of dedicated Redditors fighting a clever war that’s gone largely unnoticed until mid-January. GameStop shares started climbing but not because the fundamentals made it such a solid investment, although the news that Ryan Cohen was joining the board certainly helped. Redditors part of the massive WallStreetBets community kept buying shares and driving up the price, taking advantage of the fact that most professional investors were shorting the shares. Well over 100% of GME stock was borrowed and sold short, and that’s what the Redditor army took advantage of. Armed with knowledge and with mobile apps like Robinhood, the retail investors appeared to be relentless at buying and holding, a mantra that seems to dominate the WallStreetBets subreddit. The gamble paid off hugely, and Redditors are so far beating Wall Street at their own game.
Going into Wednesday’s trading session, GME shares are selling for $228.01 a pop in premarket trading, with the stock having closed at $147.98 on Tuesday. That was a 92.71% close over Monday’s close of $76.79, a figure that brought massive gains to those who bought into the stock. GME shares went as high as $159.18 in Monday trading, but it ultimately fell and settled above $76. GME still closed higher than Friday’s close of $65.01.
All that action brought the first major victim of the GME war earlier this week when Citadel and Point72 announced they would jointly invest $2.75 billion into Melvin Capital Management. Gabe Plotkin’s fund was the major loser of the day and a well-known holder of GME shorts.
Melvin started the year with $12.5 billion in assets and lost almost 30% through Friday. The $2.75 billion bailout came in before the “carnage” seen on Tuesday when GameStop soared, likely incurring additional losses to Melvin and other investment firms that have shorted GME.
Redditors on WallStreetBets have addressed Melvin’s massive short position in various threads on the forum, declaring a virtual war against Melvin and others and calling for blood. More people are starting to take notice, and sides.
The subreddit is a thriving community that counts more than $2.5 million members, with some half a million people having reportedly joined in the past few weeks. While independent retail investors can not match the power of investment funds like Melvin, this army of hundreds of thousands of well-informed, educated Redditors who have trading apps installed on their phones has proven to be a tougher adversary than Wall Street could have imagined.
The inspiration of Redditors buying GME like crazy is a user that goes by the handle DeepFuckingValue, who started buying GME stock all the way back in September 2019. The person started with a $50,000 position that was valued at over $25 million as of Monday’s peak, which dropped to almost $14 million by the end of the day. The portfolio then rose by almost $10 million by Wednesday’s close.
The entire WallStreetBets is also an absolute marvel to read. It’s not just because of the fun these investor-revolutionaries seem to have driven up the GME price just to stick it to Wall Street. But because many of them actually know what they’re doing and how to take advantage of a short squeeze situation, that seems to have no end in sight. Firms like Melvin will have to find more money to buy shares to cover their own shorts, which in turn, will drive up demand. And those Redditors do not seem ready to sell, with many aiming for $1,000+ prices for a GameStop share.