GME Stock – GameStop Short-Squeeze Makes Quick Money For The Common Internet-Goer – The Griffin
On January 13th, an abnormal spike in the value of GameStop stock occurred—the value of the stock jumped by 50%, closing at $31.40 a share—which was unprecedented for the company. This upsurge in GME (GamesStop Stock) was the result of many retail investors believing that its true worth was higher than its initial market value. As a result, we observed a gradual rise of the stock to 30$-40$ value per share. Coincidentally, Hedge Fund: Melvin Capital was in the process of short-selling GME which led to a perfect storm.
For clarity, short selling is when an investor borrows a stock, and then sells it, hoping that the stock value drops. If it drops, then the investor buys it back and returns it to the lender for profit. In essence, the profit equals is the difference between the sell price and the buy price.
The original interest in GME started through Reddit user Keith Giller, who believed that the current value of GME at the time of his purchase was lower than its actual value. This led to a cult-like following behind Giller on Reddit’s stock market messaging board r/WallStreetBets after he began posting monthly updates on his investments in GME, called “GME YOLO”. As he gained more attention, GME grew—this eventually led to a clash between the short shellers and GME retail investors.
The aim of short sellers such as Melvin Capital, in this case, was to profit off of the declining GME value. However, the spike in the value of GME led to a short squeeze. Eventually hedge funds were forced to pay out resulting in billions of losses incurred. The most prominent hedge fund in the GME short squeeze was Melvin Capital losing 4.5 Billion dollars.
On January 27th, GME stock spiked at $347.51 USD, this was at the close of the trading day. On January 28th, Robinhood Trading (an investing app) halted all of the trading of GME on its platform, causing the stock to drop by over $100 to $193 per share. This caused uproar in r/WallStreetBets, as well as thousands of other retail investors looking to make some money through the short squeeze. Congress took interest too, concerned with possible collusion between Robinhood and the hedge funds who were losing money on the short squeeze.
On January 18th, Congress held a high profile hearing with individuals who were involved in the GME short squeeze, the most notable individuals being: Kenneth C. Griffin (Hedge fund manager), Keith Gill(Financial analyst/Redditor), Gabe Plotkin(Founder of Melvin Capital), and Steve Huffman(Owner of Reddit). Vlad Tenev, the owner of the Robinhood, was the main focus of the meeting, as he was questioned about Robinhood’s failures to reciprocate and manage the trading of GME going on his platform. Tenev blamed Robinhood’s shortcomings on the massive influx of trades in addition to the trades occurring through his service(Robinhood trading app) during January 27th which was during the peak of GME stock.
In a time of economic struggle we can see an instance of the middle class punishing the risks of the top 1%, and gaining profit off of it. The news reaction as well as the actions of Robinhood Trading show more evidence of a fixed system in favor of the rich, and that the “risks” they make in the stock market can be punished by the average person. In the end of the day it gives a struggling populace something to smile at and know they are not excluded from making money from stocks.