Since 1984, GameStop has been one of the go-to places for consumers to get their videogames, consoles, and other geek fandom apparel. However, in recent years GameStop's success has seen a decline for multiple reasons, one of which being the rise of digital versions of games being sold directly to gamers.
Now, GameStop has seen a spike in popularity again thanks to a group of Reddit stock traders in the WallStreetsBets subreddit. The group's goal is to take down large corporations trying to short the company, betting that it will fail. The plan was to set up a "short squeeze" with GameStop's shares by raising its popularity, which would force the companies who bet against GameStop to buy into GameStop if it wanted to avoid an even greater loss.
Now, it seems the plan has worked so far. Last year, stock in the GameStop company was trading for less than $5; it has flown to over $300 a share almost overnight. This has caused GameStop stock trading to be suspended for the time being and outages to occur across trading apps such as Robinhood.
Melvin Capital, one of the leading investment firms that bet against GameStop, has reportedly decided to close out its short position after taking heavy financial casualties. Before this bet, the company was worth about $12 billion dollars, and momentarily it has lost 30% of its worth thanks to the battle with the Redditors. It got so bad that other billionaires had to come in to help Melvin Capital recuperate from the damages.
This whole event started when Reddit users pointed out that the company was actually worth way more than what the stock market was saying it was and that it was the most shorted company on the market. Then Michael Burry, the figure that inspired the movie The Big Short, believed in the company and bought up 3% of its shares. This, and other similar events, caused a group of small investors to trade among themselves and drastically raise the price.
Because of these insane twists of events, many are calling on the Securities and Exchange Commission to intervene and fix this seemingly meme-like market manipulation. Since this is an unprecedented event, though, there are no set of guidelines on how to correct what has been happening so far. At the moment, the WallStreetsBets subreddit does not believe that Melvin Capital is honest about giving up its short position, so they will continue to drive up the shares.
Source: Kotaku