Investors had borrowed money to support their pessimistic investment. These volatile price movements were not driven by fundamental factors or news about the companies. The unprecedented rally in these stocks made the short-sellers fall into the trap of a short squeeze. This was now when the users of the Reddit website subgroup Wall Street Bets began buying shares.
Gamestop squeeze movie#
A similar trend was seen in AMC Entertainment, a movie theatre chain, where the share prices jumped ~300% on January 27, 2021, closing the same at $19.88.
Gamestop squeeze series#
In around 10 trading days, a series of short squeezes occurred making the stock price jump over 15 times, eventually resulting in a stock price as high as $500. GameStop is an American video game and gaming merchandise retailer, the shares of which closed at under $20 per share on January 12, 2021. The play behind GameStop and AMC stock rise This phenomenon, where a short seller is buying stocks to cover his loss, is referred to as a short squeeze in stock markets. Several days later, if the stock price jumps to $120, the short seller would have to buy the stock at $120 and incur a loss. This increased buying causes the stock to keep going up forcing even more short-sellers to make similar choices, as above.įor example, if a short seller expects the stock price of company X to fall to $80 from $100, he might short the stock presently at $100, and close his position by buying the stock when the prices are less. Instead of sinking, the prices are climbing continuously.Īt this point, the investor should either buy replacement shares at a higher price or buy even more shares than the investor needs in the hope of selling them for profit and covering the losses. The investor realizes that he is unable to buy the stock back at a lower price. Instead, something happens (let’s say the company issues a favourable earnings report or there is some good news for its industry), and the stock price starts rising. With the anticipation of the prices to fall, he takes a short position. Suppose an investor identifies a stock which he believes is overvalued. Therefore, an unexpected price rise stimulates the short-sellers to act fast and limit their losses. But, if the reverse happens, they’re forced to buy at a higher price and bear a loss. If the price falls, they close their positions by buying the same stock at lower prices, thereby earning profits. This buying spree continues adding upward pressure on the stock price, ultimately squeezing the short-sellers out of the market.Ī short-seller sells the shares presently and expects the prices to drop in future.
This stands in stark contrast to the short-squeeze frenzy of January 2021, when GameStop and AMC skyrocketed by 1,600% and 750%, respectively, over just a few sessions. Netherlands-based electric vehicle charging company Allego NV (ALLG.N) joined the fray, skyrocketing 114.1%.Įven with today's rally, GameStop, AMC, Blackberry and Koss are down between 5% and 24%, year-to-date. Other companies associated with the trend, also referred to as "stonks" on social media, like Blackberry, Koss Corp (KOSS.O) and Sundial Growers (SNDL.O), advanced between 1.4% and 4.2%. "It causes a frenzy in the shorting community and it can close a hedge fund" with extensive short positions. "That provides an opportunity for these investors to try to create a short squeeze," Ghriskey added. "This has probably occurred because we’re in a weak market environment, likely investment managers who short are looking for opportunities and they’ve gone back to those historically tried and true names," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. GameStop and AMC were the top two most trending stocks on the retail investor-focused on Wednesday.
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