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GameStop short squeeze

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The GameStop short squeeze is an ongoing short squeeze of GameStop, a video game retailer, and numerous other securities traded on the New York Stock Exchange and the NASDAQ, among other stock exchanges. The GameStop short squeeze increased the stock price almost 190 times from its record low, hitting a high of nearly $500 per share on January 28, 2021, causing large losses for short sellers. The rush to cover these positions only drove the price higher.[1] The GameStop short squeeze was primarily triggered by the users of the subreddit r/wallstreetbets and other online trading forums, mainly through commission-free trading apps such as Robinhood.

On January 28, Robinhood halted trading of GameStop and other securities, attracting criticism and accusations of market manipulations from several politicians, including Ted Cruz and Alexandria Ocasio-Cortez. Furthermore, a class action lawsuit was filed by a Robinhood customer.

Some commentators have drawn comparisons to the Occupy Wall Street movement.

Background

A GameStop store

GameStop, an American chain of brick-and-mortar video game stores, has been struggling due to competition from digital distribution services. The company was also impacted by the COVID-19 lockdowns, decreasing the number of people shopping in person. GameStop's stock price was declining, leading many institutional investors to short the stock. However, in September 2020, Ryan Cohen (the former CEO of Chewy), revealed a significant investment in GameStop and joined the company's board, leading many people online to believe the stock was undervalued.[2]

During the COVID-19 pandemic, most people stayed home and had more time to spend, with consumer spending being drastically lowered. There was more money in the hands of investors as a result of historically low interest rates and of inability to spend their money elsewhere.[3] There is also a culture of taking massive gambles on the stock market, hoping to make money quickly.[4] There is also anger from some investors towards the Wall Street hedge funds for their role in the financial crisis of 2007–2008 and a general perception that they are a disadvantage to the working class.[5][6]

Running up to the squeeze, approximately 140% of GameStop's shares had been sold short.[7] Users of the subreddit recognized the company was being significantly undervalued, and with such a high amount of the shares being short, they could short squeeze the stock. Reddit users could drive up the price as high as they wanted, forcing the big firms to buy it at their inflated price.[8]

Timeline

GameStop share price at end of day
Day Price (USD)
January 20 39.12
January 22 65.01
January 25 76.79
January 26 147.98
January 27 347.51
January 28 193.60
Source: NYSE[9]

In January 2021, users of r/wallstreetbets initiated a short squeeze on GameStop, pushing their stock prices up significantly. This occurred shortly after a comment from Citron Research predicting the value of the stock would decrease.[10] The stock price increased more than 680% by January 26, and its high volatility caused trading to be halted multiple times.[11][12] In addition to the short squeeze, the resulting increase in options volume triggered a gamma squeeze as a result of market makers needing to buy shares to hedge their increasingly short exposure.[13]

After the GameStop stock closed up 92.7% on January 26, 2021, business magnate Elon Musk tweeted out a link to the r/wallstreetbets subreddit, with a mention of GameStop.[14] As of January 28, 2021, the all-time highest intraday stock price for GameStop, excluding extended-hours trading, is US$483.00 (nearly 190 times the record low of $2.57).[15]

On January 27, 2021, r/wallstreetbets triggered a short squeeze on AMC Theatres, a company in a similar position to GameStop.[16] The value of AMC Networks (AMCX) also increased in value significantly, which was believed to have happened because of the stock's name being similar to AMC's.[17] Disruptions and restrictions limiting trade have been reported on multiple brokerages such as Charles Schwab Corporation, its subsidiary, TD Ameritrade, and Robinhood.[18][19] According to Bloomberg, US trading volumes on January 27 (in terms of share count) exceeded the peak set in October 2008 during the financial crisis, and was the third-highest in dollar terms within the last 13 years on record.[20]

GME Resources, an Australian mining company, also saw their shares significantly increase in value on January 28. This was speculated to have occurred as a joke.[21]

On January 28, 2021, GameStop shares opened higher in pre-market, reaching a high of nearly $500 per share.[9] However, at approximately 8 AM EST, Robinhood delisted GameStop, AMC, BlackBerry, Nokia, and other volatile stocks from its trading platform;[22] users could no longer open new positions in the stock, although they could still close them. Other exchanges soon followed suit. Many traders were furious, and called for class-action lawsuits in multiple popular reddit posts.[23]

Other trading platforms such as UK based Trading212 have also blocked buys of GameStop and other stock while continuing to allow sales.[24]

Controversy

Bloomberg previously reported that 40% of Robinhood's revenues were derived from selling customer orders to firms such as Citadel Securities and Two Sigma Securities.[25] Citadel Securities was fined $700,000 in July 2020 for trading ahead of customer orders. They delayed certain equity orders from clients to buy or sell shares while continuing to trade the same stocks in its own account, as part of its market-making activities, according to FINRA. Over a two-year period until September 2014, hundreds of thousands of large OTC orders were removed from its automated trading processes, rendering the orders "inactive" and so they had to be handled manually by human traders. Citadel Securities then "traded for its own account on the same side of the market at prices that would have satisfied the orders," without immediately filling the inactive orders at the same or better prices as required by FINRA rules.[26] In September 2020, Robinhood was probed by the SEC into whether they properly informed clients that they sold stock orders to high-frequency trader and other Wall Street firms.[27]

Impact

As of January 28, 2021, Melvin Capital, an investment fund shorting GameStop, had lost 30% of its value since the start of the year.[28] The fund received an emergency $2.75 billion investment before stating to CNBC that they covered (closed) their position on January 26. The exact amount was not disclosed.[29][30] Reportedly Citron Research, another hedge fund, had also shorted the stock and claimed to have closed the position with a 100% loss.[6][31] According to Morgan Stanley, a number of hedge funds covered their short positions and sold shares in their portfolio to reduce leverage and market exposure, in some of the largest such actions within 10 years.[32] In contrast, BlackRock Inc., which owned about 9.2 million shares (13%) of GameStop as of December 31, 2020, stood to make gains of about $2.4 billion on the market activity.[33] On January 26, 2021 it was reported that short sellers lost a total of $5.05 billion due to the squeeze.[34]

Reactions

Senator Elizabeth Warren called out the investors and hedge funds which were criticizing the rally, saying they "have treated the stock market like their own personal casino while everyone else pays the price".[35] Similar sentiments were expressed by Senator Ted Cruz,[36] Representative Alexandria Ocasio-Cortez,[37] Representative Rashida Tlaib,[38] Representative Ted Lieu,[39] Donald Trump Jr.,[40] Fox Business host Charles Payne,[41] conservative political commentators Ben Shapiro[42] and Rush Limbaugh,[43] billionaire investor Mark Cuban,[44] and The Lincoln Project founder Reed Galen.[45] Some of these commentators also expressed frustration at Robinhood and other's decisions to close individual trading of GameStop, among other stocks. In an interview with CNBC, Reddit co-founder Alexis Ohanian compared the rally to Occupy Wall Street, saying that "it's a chance for Joe and Jane America—the retail buyers of stock—to flex back and push back on these hedge funds."[46]

White House press secretary Jen Psaki on Wednesday said Treasury Secretary Janet Yellen and others in the Biden administration were monitoring the situation.[48] Speaker of the House Nancy Pelosi said that Congress will be reviewing the situation.[49] Senator Sherrod Brown announced that the Senate Banking Committee would hold a hearing on the state of the stock market and the alleged market manipulation surrounding the GameStop short squeeze.[50]

Users review bombed the Robinhood app on the Google Play store after they halted trading of GameStop pushing the rating down to one star.[51]

YouTuber Philip DeFranco announced he would drop his partnership with Robinhood, saying "Robinhood is never getting a fucking spot on my show again regardless of the offer".[52]

Lawsuit

A Robinhood customer filed a class action lawsuit against Robinhood for halting trading on GameStop, claiming that the action was an attempt to "purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood’s customers".[53] Alexander G. Cabeceiras, the attorney who filed the suit, tweeted shortly after: "'Robinhood's mission is to democratize finance for all.' This is simply not true." The lawsuit is seeking reinstatement of $GME trading to the platform, as well as a class action fee for plaintiffs, attorney’s fees, and punitive damages.[54]

Other affected assets

Stocks

This is a dynamic list and may never be able to satisfy particular standards for completeness. You can help by editing the page to add missing items, with references to reliable sources.

Apart from GameStop, the stock central to the short squeeze triggered by Reddit, many other securities were affected by similar short squeezes, greatly increasing their prices:

Security (Symbol) Price high Jan 22 % chg. Ref.
AMC Networks (AMCX) 73.00 49.38 47.8% [17]
AMC Theatres (AMC) 20.36 3.51 480.1% [55]
Bed Bath & Beyond (BBBY) 53.90 30.21 78.4% [56]
BlackBerry Limited (BB) 28.77 14.04 104.9% [57]
Express, Inc. (EXPR) 13.97 1.79 680.4% [57]
iRobot Corporation (IRBT) 197.40 98.94 99.5% [58]
Koss Corporation (KOSS) 127.45 3.34 3715.9% [59]
Nokia Oyj (NOK) 9.79 4.20 133.1% [60]
Tootsie Roll Industries (TR) 58.98 30.14 95.7% [61]
Virgin Galactic Holdings (SPCE) 59.43 34.28 73.4% [58]
Build-A-Bear Workshop, Inc. (BBW) 8.40 4.52 85.8% [62]
Naked Brand Group (NAKD) 3.40 0.44 672.7% [63]
Eastman Kodak Company (KODK) 15.15 9.46 60.1% [64]
Genius Brands (GNUS) 3.36 1.57 114.0% [64]
Palantir Technologies (PLTR) 45.00 32.58 38.1% [64]
National Beverage Corp. (FIZZ) 196.43 98.44 99.5% [65]

Prices may vary during extended-hours trading.


See also

References

  1. ^ Phillips, Matt; Lorenz, Taylor (January 27, 2021). "'Dumb Money' Is on GameStop, and It's Beating Wall Street at Its Own Game". The New York Times. ISSN 0362-4331. Archived from the original on January 27, 2021. Retrieved January 28, 2021.
  2. ^ Stewart, Emily (January 25, 2021). "How a bunch of Redditors made GameStop's stock soar". Vox. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  3. ^ "Opinion: Do record-low interest rates justify the stock market's overvaluation? Here's the answer". MarketWatch.com. December 28, 2020. Archived from the original on January 27, 2021. Retrieved January 28, 2021.
  4. ^ "New Generation Of Investors Are Treating The Stock Market Like A Casino". Yahoo.com. June 16, 2020. Archived from the original on July 1, 2020. Retrieved January 28, 2021.
  5. ^ "How WallStreetBets Redditors Used Their Collective Power to Manipulate the Stock Market". Esquire.com. January 27, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  6. ^ a b Kochkodin, Brandon (January 25, 2021). "How WallStreetBets Pushed GameStop Shares to the Moon". Bloomberg News. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  7. ^ Chapaman, Michelle (January 27, 2021). "In battle over GameStop shares, two big players flinch". MarketsInsider. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  8. ^ "How Reddit and WallStreetBets blew up Gamestops Stock". Vox. January 28, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  9. ^ a b "NYSE". www.nyse.com. Archived from the original on January 19, 2021. Retrieved January 28, 2021.
  10. ^ Lyons, Kim (January 22, 2021). "GameStop stock halts trading after Reddit drama". The Verge. Archived from the original on January 24, 2021. Retrieved January 25, 2021.
  11. ^ Li, Yun (January 26, 2021). "GameStop jumps another 90% above $140, but short sellers aren't backing down". CNBC. Archived from the original on January 26, 2021. Retrieved January 27, 2021.
  12. ^ Kilgore, Tomi. "GameStop's stock rockets again in volatile trading, while company has not released news or commented". MarketWatch. Archived from the original on January 26, 2021. Retrieved January 27, 2021.
  13. ^ Niu, Evan. "GameStop's Gargantuan Gamma Squeeze". The Motley Fool. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  14. ^ Bursztynsky, Jessica (January 26, 2021). "GameStop jumps after hours as Elon Musk tweets out Reddit board that's hyping stock". CNBC. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  15. ^ "GameStop Corp. (GME : NYSE) Stock Price & News - Google Finance". Google Finance. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  16. ^ Warren, Tom (January 27, 2021). "Reddit's GameStop traders turn their attention to AMC stock". The Verge. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  17. ^ a b Morrow, Brendan (January 27, 2021). "AMC Networks' stock might have gotten a boost thanks to confused Reddit users". The Week. Archived from the original on January 28, 2021. Retrieved January 27, 2021.
  18. ^ Goldstein, Steve. "Disruptions reported at multiple brokerages as GameStop, AMC surge". MarketWatch. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  19. ^ "Trading platforms are limiting trades of GameStop and other companies". The New York Times. January 27, 2021. Archived from the original on January 27, 2021. Retrieved January 28, 2021.
  20. ^ "US stock trading volumes soar past 2008 peak in Reddit battle". Financial Times. January 28, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  21. ^ Powell, Dominic (January 28, 2021). "'Stunned': GameStop trading frenzy causes local mining company shares to soar". The Sydney Morning Herald. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  22. ^ "Robinhood clients say platform has removed GameStop and AMC, and is only allowing holders to sell". www.msn.com. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  23. ^ "Robinhood restricts trading of companies targeted by Reddit users". The Hill. January 28, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  24. ^ Brennan, Harry (January 28, 2021). "Brokers block Reddit traders from buying GameStop amid market frenzy". telegraph.co.uk. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  25. ^ "Robinhood Gets Almost Half Its Revenue in Controversial Bargain With High-Speed Traders". Bloomberg.com. October 15, 2018. Archived from the original on January 19, 2019. Retrieved January 28, 2021.
  26. ^ Henderson, Richard (July 20, 2020). "US regulator fines Citadel Securities over trading breach". Financial Times. Archived from the original on December 20, 2020. Retrieved January 28, 2021.
  27. ^ "Robinhood Probed by SEC Over Payments From High-Speed Traders". Bloomberg.com. September 3, 2020. Archived from the original on October 14, 2020. Retrieved January 28, 2021.
  28. ^ "White House 'monitoring' GameStop share surge as US hedge fund pulls out". the Guardian. January 27, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  29. ^ Li, Yun (January 27, 2021). "Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position". CNBC. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  30. ^ Wallace, Joe (January 25, 2021). "GameStop Stock Jumps to New Record". Wall Street Journal. ISSN 0099-9660. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  31. ^ Jamieson, Amber (January 26, 2021). "An "Angry Mob" On Reddit Is Pushing Up GameStop's Stock Price And Pissing Off A Bunch Of Wall Street Firms". BuzzFeed News. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  32. ^ "Hedge funds retreat in face of day-trader onslaught". Financial Times. January 28, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  33. ^ "BlackRock may have raked in $2.4 billion on GameStop's retail-driven stock frenzy". Reuters. January 27, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  34. ^ Dusaniwsky, Ihor (January 26, 2021). "GameStop Shorts Down $5 Billion in 2021". Retrieved January 28, 2021.
  35. ^ Panetta, Grace. "Elizabeth Warren and AOC slam Wall Streeters who criticize the GameStop rally, saying they treat the stock market like a 'casino'". Business Insider. Archived from the original on January 27, 2021. Retrieved January 28, 2021.
  36. ^ @tedcruz (January 28, 2021). "Fully agree. 👇" (Tweet) – via Twitter.
  37. ^ @AOC (January 27, 2021). "Gotta admit it's really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino" (Tweet) – via Twitter.
  38. ^ @RashidaTlaib (January 28, 2021). "This is beyond absurd. @FSCDems need to have a hearing on Robinhood's market manipulation. They're blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who've used the stock market as a casino for decades" (Tweet) – via Twitter.
  39. ^ @tedlieu (January 28, 2021). "The dramatic rise in GameStop stock price raises the question to me of whether there is any societal value to shorting stock? I'm not sure there is. In which case my initial reaction is that it's awesome Reddit users and others are sticking it to hedge funds. Do you agree?" (Tweet) – via Twitter.
  40. ^ @DonaldJTrumpJr (January 28, 2021). "It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks! #RobinHood #RedditArmy #GME #GMEtothemoon" (Tweet) – via Twitter.
  41. ^ Barkoukis, Leah. "Why Wall Street Is 'Losing Its Mind' Right Now". Townhall. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  42. ^ @benshapiro (January 28, 2021). "Note: Robinhood absolutely should not be stopping trading of GameStop. Market mechanisms include the reality that some people will attempt to game the market mechanisms -- and some will pay the price. Restricting who can buy and sell is using a hammer on free markets" (Tweet) – via Twitter.
  43. ^ https://www.foxnews.com/media/rush-limbaugh-gamestop-story-mirrors-politics-elites-attempt-regular-people-benefiting
  44. ^ "Archived copy". Archived from the original on January 28, 2021. Retrieved January 28, 2021.{{cite web}}: CS1 maint: archived copy as title (link)
  45. ^ @reedgalen (January 27, 2021). "Must Read as always. What I noticed, watching @CNBC today: If a bunch of Reddit dudes can scare hedge funds by driving Game Stop through the roof, 1) maybe there are more structural issues than we'd care to admit 2) WS guys don't like others playing their game" (Tweet) – via Twitter.
  46. ^ Passy, Jacob (January 28, 2021). "Reddit co-founder Alexis Ohanian compares GameStop's epic ride to Occupy Wall Street: 'I don't think we go back to a world before this'". MarketWatch. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
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  50. ^ @SenateBanking (January 28, 2021). "BREAKING: Incoming Chairman @SenSherrodBrown's response to the current state of the stock market" (Tweet) – via Twitter.
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  54. ^ "Archived copy" (PDF). Archived (PDF) from the original on January 28, 2021. Retrieved January 28, 2021.{{cite web}}: CS1 maint: archived copy as title (link)
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