The stock price of video game retailer GameStop is soaring, and there's no good reason for it -- if you ask the professionals. But a group of traders that frequent Reddit's popular subreddit r/wallstreetbets has given these pros the finger, and they don't plan to quit anytime soon. Here's what's happening: GameStop hasn't been doing too great in recent years. Retail video stores are a dying business, and, typically, GameStop's quarterly earnings results are so bad that they almost always cause the stock to plummet. This also makes it a heavily shorted stock (shorting means borrowing a company's shares and selling them on the market with the hope you'll be able to re-buy them cheaper later), with hedge funds like Melvin Capital making massive bets that GameStop stock price will fall.
GameStop's logo is displayed on a phone screen, along with an illustrative stock chart on the background, in this illustration photo taken in Poland on Jan. 28. Shares of GameStop have surged as part of a battle between amateur investors and hedge funds. GameStop's logo is displayed on a phone screen, along with an illustrative stock chart on the background, in this illustration photo taken in Poland on Jan. 28. Shares of GameStop have surged as part of a battle between amateur investors and hedge funds. Editor's note: This story contains tweets with language some readers might find offensive.
The siege by Reddit's WallStreetBets community on institutional investors betting against the stock of video game retailer GameStop is now the stuff of internet and market legend. A loosely organized movement of amateur traders has made GameStop's stock one of the most traded equities on the planet, and one of the most discussed ever. The gambit to buy stock of GME in huge numbers and drive up the price has made some Redditors and their allies life-changing money. A stock that cost $2.57 in the early days of the pandemic rose to around $30 in mid-January and $380 by one point on Wednesday. Early Thursday, the online trading platform Robinhood halted new acquisitions of the stock as the price kept going up past $400, inspiring an immediate class-action suit and widespread outrage among the Redditors and other retail investors, including Ja Rule. Shortly after the stoppage, the stock took its steepest drop of the week, plummeting from nearly $500 at one point in early trading to under $150 after markets opened.
For those who haven't heard, there's a bit of a brouhaha brewing with the video game retailer GameStop, which is publicly traded. Much of Wall Street soured on the company, believing it to be the next Blockbuster or Radio Shack: a dinosaur from a bygone era that has no hope of succeeding in the increasingly internet-run future. As a result, a major Wall Street hedge fund worth billions decided to make a bet that the company's already low stock price would just keep going lower. The traditional way to make money in stocks was to find a company that was worth more than what its stock price indicated, purchase the stock at a bargain, and then make your money either through the company's distribution of its profits back to its equity owners or the appreciation of its stock price. But you can also make money betting on a company to eventually circle the toilet.
They are among the millions of amateur traders collectively taking on some of Wall Street's most sophisticated investors -- and, for the moment at least, winning. Propelled by a mix of greed and boredom, gleefully determined to teach Wall Street a lesson, and turbocharged by an endless flow of get-rich-quick hype and ideas delivered via social media, these investors have piled into trades around several companies, pushing their stock prices to stratospheric levels. Some of the names are from an earlier business era. BlackBerry's shares are up nearly 280% this year. Stock in AMC, the movie theater chain, has surged nearly 840%.