It’s a Robin Hood story that’s taking place on the Robinhood smartphone app, and Wall Street is not happy about it.
The trouble all began with users on Reddit discovered that a number of capital firms had “shorted” stock in a GameStop – a company whose business model is growing obsolete. These shorts allowed the companies to bet against GameStop, buying shares at one price, and making money should the shares drop much lower. They do this by selling at one price and buying back cheaper, (on the “short”), to fulfill their legal obligations.
In the case of GameStop, these big-money movers had shorted at least 140% of the total stock available, and Reddit users figured this out. Then, all Hell broke loose.
Shares of GameStop surged again Wednesday, continuing the streak of wild swings for the stock as several high-profile short sellers said they had backed away from their positions.
The name traded at roughly $337 per share when it was briefly halted shortly after 1 p.m. ET, up almost 128% from Tuesday’s close and giving the company a market cap of about $23 billion. The stock traded as high as $380 per share in premarket trading.
The latest move higher comes as some of the high-profile short sellers of GameStop, including Melvin Capital and Citron, announced that they covered most or all of their positions.
Now, as so-called “retail investors” continue to buy and hold their GameStop stock, the firms who shorted the stock are being forced to buy back the scarce shares at market value, with is at an enormous markup for them, thus creating value for the small time investors who helped push the price to its extreme limits.
The mood was tense over at CNBC, where the old guard stock managers were losing their minds.
Billionaire CEO Chamath Palihapitiya debates against CNBC's Scott Wapner on people investing in Gamestop stocks pic.twitter.com/MHtvcB9umw
— SOUND (@itsavibe) January 27, 2021
Now, as Reddit is still fully involved in this game of chicken with Wall Street, some have to wonder just how close to the moon GameStop and other heavily shorted stock prices could go.
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