What happened with GameStop stock prices? Why did their stock prices rocket up?

GameStop has been in the news recently over its soaring stock price. At the time of writing this article, the share price of GameStop is around 347 USD. Why this is really surprising is the fact that just a year ago, the stock price of this GameStop was just around 4 USD. What happened? Read below to find out. 

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GameStop Stock Explained 

Before trying to understand what happened with GameStop stock prices soaring, one needs to understand how shorting works. Shorting or short selling is the borrowing (like taking a loan) of a company's stock believing the prices of the stock will go down in the future. These stocks are then sold at market price by traders to clients and use that money to buy other shares to make a profit from. When the time comes to return the borrowed company shares, the prices of those shares have fallen and the traders who borrowed those shares can buy those shares at low prices to return them at a profit. However, there is always the potential risk of a borrowed share skyrocketing in value, in which case, the trader has to buy back the borrowed stock at a very higher price than what he paid for it. It's a very risky and shady trade and is often looked down on. 

 

Also Read: Asian Shares Retreat After Bumpy Day On Wall Street

GameStop Stock Short 

The whole thing started when Melvin Capital, a hedge fund group started shorting GameStop stock around a month ago. The firm did this when the price of the stock was around 15 USD, believing it would go down further as GameStop was suffering heavy losses during COVID lockdown. However, the now popular Reddit community r/WallStreetBets(WSB) had other things on their minds.

What Happened With GameStop Stock?

At the same time, Melvin Capital was shorting GameStop stocks, the Reddit community of WSB started pumping money into the stock. This caused GameStop stock to soar to very high prices. As mentioned above, their stock price is around 347 USD at the time of writing this, a massive jump from what Melvin Capital sold the shorted stocks for. Melin Capital had to borrow somewhere around 3 billion dollar bailout from the government following their losses on the GameStop stock.

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This is just an example of how wrong things can get when shorting stocks. This was basically a very large online community of trolls fighting back against billion-dollar corporations who engage in shady practices like shorting to make a profit at the expense of other investors. WSB has seen the number of its members rise higher and higher since the pandemic started, as the youth who were sitting at home started joining the trading business in their free time.

 

Is AMC the next GameStop?

Traders have their eyes on the AMC stocks next. A company that shares a lot of similar characteristics with GameStop. AMC is a physical business(AMC theatres) like GameStop and since the pandemic has suffered heave losses. Wall Street traders have also been shorting AMC stocks and some there have been discussions on WSB to pump up AMC stocks. 

This is an unprecedented incident and will be remembered in the years to come. How an ordinary group of people sitting at home, caused an uproar in the stock market. This incident also goes a long way in proving that the actual stock price of a company is not the real indicator of how the company is doing and the wall street is not in line with the current economy. 

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