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GameStop stocks exploded today as a subreddit caused a major trading rush

GameStop Stocks have soared because of Reddit

GameStop stock has exploded in price, jumping to more than $100 a share at peak. On Friday, 194 million shares were traded, over 12 times its average trading volume. Those of you who followed this site long enough know that we’ve been covering the ills of the gaming retailer for some time, and the prospect isn’t good. The gaming retailer has been losing money for some time.

The death rattle of physical retail has a long tail, but it doesn’t look good. The company has closed hundreds of stores in the last couple of years alone. The company had already stirred up controversy during the COVID-19 pandemic’s initial stages by trying to stay open, endangering employees and communities. A holiday rush of online sales helped the ailing retailer, but for many, all it did was staunch the bleed. All of this and so much more led to a major drop in share price, and a complete lack in confidence of a rebound.

But this week, all that seemed to change and reverse course on a dime. So let’s be honest and talk about why this is happening because it’s not because of anything GameStop did or was planning.

So what set all this off? In essence, a pricing war between “short-sellers” and other stock traders over GameStop stock. Short-selling is the practice of selling a security, like a stock or a commodity, on the open market, while you don’t actually own the instrument. The plan is to then buy back the instrument when the price drops, making money on the difference. These drops in price often spell bad tidings for companies and commodities being traded, but it’s all cash for those shorting. But when the shorts cut and run, like when a price rally happens, the opposite effect of what they want is amplified. The increase interest in trading a rising stock combines with more sellers and pushes the stocks upward.

So with GameStop stocks having been in the toilet for some time, a lot of traders were expecting them to fall even further. That expectation led to tons of people trying to further short GameStop’s ticker. This is a pretty common practice in the trading world, but that doesn’t earn it a very sterling reputation. Short-selling is not a well-liked practice by some traders, but it makes money, and it’s hard to argue with the results today for GameStop stocks when all you’re concerned with is money.

The biggest culprits of all this? A subreddit called WallStreeetBets. The community became an overnight name today as tens of thousands of traders all tried to cash in. The price rise was inevitable with more and more traders rushing in to get in on the action. As one shorter by the moniker Citron points out, GameStop is “a failing, mall-based retailer,” and that its value is “not based on any fundamentals, [which] just shows the natural state of the market right now.”

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WallStreetBets has been sort of betting against the shorts. The community has 2 million members and describes itself as “like 4chan found a Bloomberg terminal.” It’s a hotbed for chaos and speculation that treats stock trading and investing like a more casual and gamified hobby, And it’s hard to argue the power of collective action in instances like this. And when the community wants to drive a rally, like they did this week, they will eventually have some impact. Although it’s hard to imagine this was the expected outcome.

WallStreetBets moderator Bawse1 has sort of become the public face of all this.  But amid the hype and chaos, people are going to be angry. A series of harassment and doxing campaigns, allegedly tied to angry short-sellers and buyers alike, have been launched. At least two posts on the subreddit refer to an alleged doxing. There has been no confirmation of the threats, but it looks like there’s some serious stuff happening.

And it’s easy to see why it’s being done this way, the trading and hype I mean, as there’s an element of cooperation that seems to be driving people. “I think the subreddit brings a new factor into stocks that wasn’t as prevalent as before,” says Bawse1. “It’s called hype.”

That hype led to a major trading day for GameStop, where their new stock price at 144.59 USD around 10:45 AM. It has bounded back downwards as the artificial pressure has died down, back to a still absurdly high 77.53 USD. GameStop was up more than 50 percent from its Thursday close, with a market cap of $4.5 billion on Friday, so this was coming regardless.

So while all of this was going on, there are still some questions to sort out, like what’s next? Will the trading continue its rally as the market is completely divorced from reality? Probably not. So if you’re still holding a short for some reason, you’re probably losing a ton of money. If you’re still waiting for another jump in price to sell stock you already bought to resell, don’t hold your breath.

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