GameStop explained for dummies.
If you thought the pandemic in the recent past, effects of which continue to singe us, was all bad, be informed that in for certain industries and groups, this has come as a god-send. While the more obvious ones are the medical fraternity, PPE kit and mask makers, there still are those whose case doesn’t stand out so obviously but who nevertheless, benefitted immensely.
One such group were the investors on NASDAQ and other stock-exchanges in the US including NYSE. With humanity hunkered down into their homes for months on end, it was assumed that boredom and the strict ban on movement anywhere would get the better of them and make them go back to the ultimate pastime; videogames, and benefit one entity in particular whose shares on the stock markets at that point in time (around October 2020) was in the range of USD 2 to 4 per share.
Discussions, arguments and war-cries on reddit’s board r/wallstreetbets ensued for months. All this got the crowds of small investors into a frenzy to buy. Adding to the fervour was GameStop’s ex-CEO and Investor Ryn Cohen & others buying 9 million shares (for USD 76 mn taking the value per share to USD 8). Taking this as a signal for good times to come (though the latter’s reasons for buying were entirely different), individual investors using trading forums such as Robinhood, Webull, M1 and other bought heavily into the shares.
While the above was going on, Hedge Funds which till then held substantial number of shares of Gamestop sold short given that the company’s results were singularly unimpressive and looked like it would collapse anytime soon.
A mix of rumours/ wrongly placed convictions, larger number of shares available at very low prices meant that the buyers, most from reddit’s board r/wallstreetbets bought large number of shares at throwaway prices. With such large buying, everyone including hedge-funds like Melvin Capital were caught aware. In a matter of weeks, frenzied demands sent share prices of GameStop soaring from a low of USD 4 to 8 per share to a high as USD 480.00 on 29 January 2021- a climb of 12000% in a matter of weeks.
With most American exchanges not having the facility to cut trading in overheated shares, the share prices are still hovering in the range.
As for hedge-funds, the darling of the bourses, they lost in billions with Melvin Capital itself losing up to anywhere in the range of USD 5.00 billion!
That in short is what happened with GameStop whose game refuses to stop, at least in the near future!
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