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GameStop Short Squeeze Part 2 Has Started, Shorts Torched Again, 100+ Percent Move In Single Day

GameStop Short Squeeze Part 2 Has Started, Shorts Torched Again, 100+ Percent Move In Single Day

GameStop
Customers line up for Wii home video game consoles at a GameStop store. Photo: Dicoplio Family / Flickr / CC

GameStop is happening again as retail investors help send stocks in the mall-based video-game seller to infinity and beyond for the second day in a row.

The darling of the WallStreetBets Reddit-board, GME stock rose Thursday as much as 85 percent to $170.01 in New York, its highest since Feb. 1, Bloomberg reported.

GameStop announced on Tuesday that its chief financial officer Jim Bell will resign on March 26. Shares of GameStop surged more than 100 percent on Wednesday and were halted with less than 30 minutes left in the trading day, according to CNBC. The stock ended Wednesday up 103.9 percent, then rose another 83 percent in after-hours trading.

Image: TradingView.com

Sources told Business Insider that Bell did not leave willingly, but was forced out by Ryan Cohen, an activist investor and GameStop board member. Cohen co-founded the online pet-food retailer Chewy.com and invested in GameStop in 2020 to help the company accelerate its push online.

Bloomberg News reported on Tuesday that GameStop’s board pushed Bell out in order to execute its turnaround more quickly.

“Cohen’s appointment to the GameStop board helped drive the heavily shorted stock upward in January, which resulted in the epic short squeeze in GameStop that provoked retail trading mania and eventually attention from Congress,” CNBC reported.

This week’s GameStop rally is deja vu all over again. In January, the stocks’ gains were fueled by individual investors who touted it on Reddit’s WallStreetBets forum and other social media platforms. The stock climbed as high as $483 in late January before falling back to around $40 last week, Wall Street Journal reported.

Other popular stocks on Reddit’s WallStreetBets forum also rose, including AMC Entertainment Holdings (up 18 percent Wednesday and 10 percent Thursday). Headphone-maker Koss Corp. rose about 55 percent Wednesday and 55 percent Thursday. Both also saw their share prices rise in January during GameStop’s first rally before coming back down to Earth.

Reddit message boards are credited with helping to create a “short squeeze” on GameStop stock. That’s what happens when some investors, known as shorts, bet that a company’s stock will fall. These investors borrow stock from other investors and sell it, planning to buy it back when the prices fall and then return it to the original owner. However, the problem with shorting is that one’s losses are theoretically infinite. If a stock goes up, some short sellers will abandon their short and buy shares at the higher price. This makes the stock go up, hurting any other shorts who remain in the stock. Some of those may choose to cover their own shorts.

Wall Street scrambled to explain the latest surge, WSJ reported. Analysts, traders and market observers said it appeared to be the result of renewed interest from investors exacerbated by activity in the options market.

The WallStreetBets forum on Redditt also began to struggle to load under the weight of demands for answers as to why the stocks were rising so fast near the end of the trading day on Wednesday, WSJ reported.

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Short interest in the stock has diminished, WSJ reported. As of Feb. 12, short interest in GameStop was around 30 percent of the stock’s free float — the lowest short interest in the company since the end of December 2018, according to Dow Jones Market Data. That compares with more than 100 percent at the beginning of 2021.

Hedge funds who took short positions on GameStop’s stock in the hopes it would continue decreasing in value may have found themselves losing their bets. Short sellers lost $818 million on bets made against the company, according to financial analytics firm Ortex. 

Some individual investors are still bullish on GameStop stock since its meteoric rise in late January and became re-energized when Keith Gill, the trader on Reddit known as DeepF—ingValue, reported that he had doubled down on the shares, WSJ reported.

Known as “Roaring Kitty” on YouTube, Gill discussed in a 2020 video how aggressively Wall Street investors had bet against GameStop. Gill has 453,000 YouTube subscribers. Wall Street short-sellers set off an online revolution that turned financial markets upside down and caught the attention of regulators, New York Post reported.

While there hasn’t been a notable increase in short bets, borrowing costs for new loans have increased recently, according to Sam Pierson, director of securities finance at IHS Markit.