GameStop’s stock has crashed, but Reddit still wants to send it to the moon. How and what’s next
Wall Street’s big bets against GameStop soured when Reddit traders bet on the company’s success. Billions of dollars are now at stake.
For a while, this little guy was on fire. A group of Reddit users bought up shares of the stranded video game seller GameStop, taking on Wall Street investors who bet the company would fail. Wall Street has bet against GameStop so much and for so long that it has at times been one of the strongest stock bets on the market.
When people in the Reddit community r / WallStreetBets began to raise the price of GameStop’s stock, establishment investors began to lose billions and billions of dollars. Since then, GameStop’s stock has fluctuated wildly, from $ 17 at the start of the year to $ 483 last week, then to $ 90 by Monday’s close. The stock rallied slightly on Tuesday to close at $ 92.41, still more than 80% below their highs last week.
What makes this roller coaster unusual is why the Reddit community is buying up GameStop stock. While some say they believe in the future of GameStop, others are drawn to the idea that the higher GameStop shares go, the more Wall Street’s bad bets will cost institutional investors money.
It became politics, said Derek Horstmeier, professor of finance at George Mason University. He has watched the WallStreetBets forums for a year and a half and has seen community members take insane positions in the marketplace, throwing all their money into a position that sometimes brings big wins and sometimes worse.
But the fight against Wall Street is different, he said. Many members of the community are unhappy with the behavior of big investors over the past decade, whether it is saving many during the financial crisis or watching them make even more money as people suffer during the coronavirus pandemic.
As GameStop stocks plummeted, traders at r / WallStreetBets said their battle with Wall Street was not over yet and that in fact, stocks are likely to bounce again amid still poor Wall Street betting. More people who profited from the GameStop price spike also started talking, including a hedge fund that said it made $ 700 million in profits from the stock price surge.
Regardless of how the battle for GameStop ends, investors and industry observers say online forums have shown they can be a force in the market. I think now that they have realized their power, and now that they have learned some lessons, we are going to get more, not less, billionaire investor and Dallas Mavericks owner Mark Cuban told CNBC on February 2.
You say all the time that stocks are swinging wildly. What do you have in mind?
The r / WallStreetBets crowd has been pushing GameStop stocks up for some time, believing the bad bets of Wall Street investors will become so unbearable that they will trigger a market rally.
By Monday, January 25th, that is exactly what happened. GameStop’s stock jumped more than 822%, from $ 17.25 a share earlier in the year to a high of $ 159.18 that day. The next day, he almost halved to get up again. And then Elon Musk tweeted it to his 43 million followers (using that weird internet dictionary, of course) and the price jumped 40%.
Later this week, the stock jumped even higher to $ 483 per share before it fell in half again. In the midst of all this chaos, the stock market has temporarily stopped trading in GameStop stocks more than a dozen times on some days because the stock price swings wildly. On February 1, the share price fell more than 30% to $ 225, and on February 2, it fell another 60% and closed at $ 90.
How long will these stock price fluctuations last?
Part of the reason for this behavior is the popularity of retail investing or when non-Wall Street traders buy and sell stocks. Stock trading apps, often commission-free, have made it easier for people to enter the market. And social media has helped people rally by encouraging each other to buy more and more shares.
The GameStop Rally is one of a series of compelling market moves that have raised concerns among fund managers, some of whom say individual investor trading is driving the price of fundamental stocks down, The Wall Street Journal wrote as the drama began.
However, it is difficult to tie all the sharp market swings to the r / WallStreetBets traders. For example, the value of silver jumped to an eight-year high on Monday, February 1, but people in the Reddit community say they are not doing it. There are also growing signs that the r / WallStreetBets crowd weren’t the only ones making money from these stock moves. Senvest Management, for example, reported the Wall Street Journal,