Have you ever heard the story of a small band of rebel forces taking on a massive empire? Chances are, you thought we were talking about Star Wars. While you are not entirely wrong, we were thinking something more recent. Earlier this year, a rag-tag group of misfit day-traders on Reddit, one of the world’s largest social communities, launched an offensive to take down the Sith-esque titans of Wall Street’s hedge funds.
So, what were these keyboard crunching heroes trying to save? GameStop (GME): a former titan in the gaming industry that had been brought to its knees by a combination of digital gaming sales and COVID-19.
With stocks in shambles, tech enthusiasts on the sub-Reddit,
r/WallstreetBets, seized an opportunity to crash the short sell party that was imminent. But before we dive into the specifics, let’s back up a bit and discuss how GameStop came to be the darling of 2021 stock trading.
<>The Rise and Fall of GameStop</>
For years, GameStop has been a staple for gamers looking to get the next great title. With release parties and used game trading, their brick and mortar stores served as a beacon for gaming nerds everywhere. So, where did they go wrong?
Like many companies before them, GameStop had struggled to adapt to newer technology and was quickly on a path to becoming the next Blockbuster Video. The ability for consumers to download games on every platform available had taken its toll on the former gaming giant.
Throw in the impact that COVID-19 has had on brick-and-mortar sales and it was a recipe for disaster for GME stock prices. In response to faltering sales, GME sought outside investment in late 2020, adding 3 new board members to help bolster the flailing company.
A New Hope
As 2020 closed out, soaring online sales from the Christmas holiday provided a sense of renewed optimism. The 300% increase caused the GME stock to quickly jump from $19/share to $31/share overnight.
Users on r/WallStreetBets had already been drooling over a
letter that was shared by the newest GME board member, Ryan Cohen, in November 2020. This, coupled with the sharp jump in stock prices, provided the day-traders an opportunity to double-down in anticipation of saving the nostalgic enterprise.
Within a few short days, the stock went through the roof where it eventually peaked at $380 per share on January 27th. But what caused the colossal spike?
The Empire Tried to Strike Back
In response to the quickly grown stock prices, hedge funds like Marvin capital bet big that the shift would be short lived. These types of quick gains are all too common and short selling is a way of life for these types of companies.
In short, they planned to profit off a drop in stock prices
through a short sell. What they didn’t account for was the bullish approach taken by these pesky rebels. Rather than cash out, like most sensible investors would do, they held onto their stocks week after week. This forced hedge funds to continue to buy stock at the higher price, creating a perfect storm for GME.
The Force Became Woke
The shift in power was quickly recognized by Redditors, and other struggling industry giants were soon targeted as the next great battle. AMC Entertainment, along with every other movie theater in the world, has been reduced to a shell of its former self during the pandemic. Traders quickly set out on a world-wide crusade that flipped the script on trading, much to the chagrin of Wall Street.
With stocks like AMC jumping more than 300% overnight, alarm bells were ringing, causing panic to ensue. The trading app Robinhood imposed limits to try and curb the rebellion. Over the past few months, amateur traders everywhere have been giving the proverbial middle finger to Wall Street. Complaints by the Empire have largely fallen on deaf ears, as the rebel tactics mirrored those employed by their adversaries.
Where Does GME Stand Today?
Most of the stocks that were targeted by r/WallStreetBets members, have tapered off in recent weeks. The vast majority of them are still well above where they began, GME, for instance, opened at $111 per share on April 15th.
The boost, however, will likely carry these companies through these tough times and will allow them to usher in new opportunities for growth.
Don’t Go To the Dark Side<
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