GameStop stock hits a record high when short sellers clash with Redditors

GameStop’s share price, which had fallen steadily over the past five years before rising last fall, closed at an all-time high on Friday after a hugely volatile week in which Reddit organized day traders made a lot of trouble for investment firms shorting the stock.

Trading in GameStop stock on the New York Stock Exchange was halted twice on Friday, but not before the price peaked at $ 73.09. It closed at $ 65.01, beating the previous record of $ 63.30 set on December 24, 2007. GameStop closed at $ 43.03 on Thursday and when the surge started last week it was around $ 20 per share.

What’s happening? Well, in early September, the stock began to bounce back from the $ 5 slump it had been in for just over a year. That’s because dog food tycoon Ryan Cohen (the founder of Chewy, which he sold for $ 3.35 billion in 2017) had just acquired a 10 percent stake in the beleaguered video game retailer. He and two allies have since joined GameStop’s board of directors, and those positions could help Cohen take action his tough talk about where GameStop’s priorities should be. According to Cohen, the Texas-based company must give up its ongoing focus on brick and mortar retail altogether and move to a “technology-driven vision”.

What’s behind the breathtaking price increase this week? reports Ars Technicais “a massive short pinch bubble”. In the investment practice known as short selling, a party borrows shares in a stock and immediately sells them at the current market price. If the price later falls (as a short seller bets on), the short seller buys back an equal number of shares to return to the lender – and makes money by paying back less than the shares were worth at the time they were borrowed.

When this happens, GameStop’s share price rises, forcing these short sellers to buy more shares at a higher price to cover their positions. This has set GameStop’s share price on an upward spiral that analysts like Michael Pachter of Wedbush Securities believe will soon end.

“The smart money has already come in and probably came out” Pachter told Ars.

The smart money came in over a year ago reports motherboard. Some of it came from investors on the WallStreetBets subreddit, a community that calls itself “How 4Chan found a Bloomberg terminal”. A redditor there posted screenshots from 2019 on purchases of GameStop shares worth $ 50,000 when the share price was below $ 1.

That’s because WallStreetBets (and others) believed that if short sellers were to buy into GameStop, they would eventually have to cover their positions together, which would drive the price up. “There is probably no original GameStop-issued stock left.” noticed a Redditor. In other words, GameStop has issued more shares than are actually available to buy. Of course, higher demand and scarcity mean a higher price, and short sellers buying stocks to cover their debts – and of course the interest of new investors wanting to short stocks – drive demand.

Citron Research is one of those short sellers, and on Friday the company said it stopped commenting on GameStop’s stock because “an angry mob” made it dangerously volatile. Bloomberg reported. Citron also claims these villains tried to hack the company’s Twitter account after the company criticized the stock Tuesday and then made plans to livestream it on social media to discuss it.

GameStop’s closing price on Friday showed a market cap of $ 4.5 billion, nearly 20 times the company’s value at the end of July. However, none of this means that GameStop has actually recovered or saved as a company. Indeed, its last quarterly earnings reportIn December, sales were still down and losses per share were up year over year.

For the past two years the company has closed more than 750 stores Of the 5,700 locations in 2019, top executives and executives were laid off in the same year laid off more than 100 company employeesIn a round of layoffs in which the employees of GameStop’s own Game Informer magazine were also gutted.