What is Going on With GameStop?

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Olivia Nichols

GameStop, an American video game, consumer electronics, and gaming merchandise retailer, has flooded the news. In just six months, GameStop’s stock price has skyrocketed by over 8,000 percent in the stock market. GameStop is a video game reality and this company has had its share of struggles with COVID-19 driving customers away from the store. GameStop, like most stores, sells their product in person. Once the pandemic struck, they moved online, but many people did not expect the business to grow. Along with many other companies that are in bad shape, GameStop was a part of something called short selling. Short selling is when an investor borrows a stock, sells it, and then buys the stock back to return it back to the lender. Short sellers bet that the stock they sell will drop in price. This lets them pocket the profit if the stock price goes down. Short sellers borrow and sell a stock when it’s high and bet that it will continue to fall. If that doesn’t happen and the stock price rises, short sellers are forced to cover their positions or buy more stocks to minimize their losses. When a stock becomes popular and receives positive feedback, it will push up the stock price and value. This minimizes profit for the short seller.

With GameStop massive online trading forums showed interest in buying the stock, pushing up the price and in turn attracting more interest. The expressing trade left short sellers with no more shares to buy to cover their positions. This created a short squeeze and left them with millions of dollars in stocks they had bought at a high price but which they then had to offload at an even higher price. On January 27, 2021, a financial data company said that their analysis found that short sellers had lost $23.6 billion on GameStop in this month alone. Shares in GameStop went up on January 11th after it named three people to its board of directors as part of a deal with shareholders who had been angry for the change. This caused several short sellers to abandon their positions, helping to drive the stock up more.

Friday was the day everything began to change. On Friday, CNBC data showed that the volume of shares traded had spiked. Increased volume can indicate a short squeeze, meaning people who had bet against the stock either chose or were forced to give up and take losses. GameStop received a bunch of news coverage thanks to WSB by helping bring the story out into mainstream news. GameStop shares would go from trading at around $43, which was already significantly more than it traded at at the beginning of the year, to as much as $380, becoming one of the most traded stocks on the market. 

Usually investors are making money even if they don’t realise it. BlackRock, a company that operates mutual funds, may have made billions of dollars from the GameStop shares alone. The long lasting impact may be on how the market itself operates. Never before has a group of amateur investors taken on a hedge fund like this and won. The battle over GameStop has taken on some people outside of finance painting it as a reckoning for parts of Wall Street.