In January 2021, as most of the world remained under coronavirus lockdown restrictions, a completely new phenomenon hit financial markets thanks to the now (in)famous GameStop saga.
Put simply, a group of retail traders organised themselves on Reddit and realised that several prominent hedge funds had massive short positions on the stock of struggling gaming company GameStop. These traders therefore decided to launch a “short squeeze” in retaliation, purchasing the stock on mass and therefore driving the price up by 1500% in a matter of days.
This caused the hedge funds involved to lose billions of dollars. Melvin Capital, for example, saw a 49% loss in the value of its investments and required a $3 billion bailout before ultimately shutting down the following year.
The rise of the “meme stock” was widely seen as epitomising the new power possessed by retail traders in an era of greater financial inclusion, technologies democratising access to financial markets, and social media.
Whereas once the hedge funds were all-powerful and their dominance unchallengeable, GameStop showed that even the humblest trader, when acting in unison with like-minded people around the world, can overcome the power of the financial elite.
Now, it seems that the main traders involved are back to prove this point once again. Since the start of this week alone, the value of the GameStop stock has increased by over 75% following the return to social media of Keith Gill, who drive the initial hype in 2021 under the “Roaring Kitty” moniker.
After being inactive on X for almost three years, Gill returned on Monday with a series of memes encouraging his followers to restart the GameStop battle. Shortly afterwards, Bloomberg reported that GameStop options volumes surged to levels not seen for almost two years.
Other meme stocks now appear to be following suit, with the struggling movie theatre chain AMC soaring 120% in premarket trading yesterday. Phonemaker BlackBerry and headphones manufacturer Koss both made substantial gains as well.
Neil Wilson, chief market analyst at Finalto, said that “it looks like retail investors are becoming more bullish again and willing to take on more risk. There is no fundamental reason for the move as such.”
Author: Harry Clynch
#GameStop #Reddit #HedgeFunds #ShortSqueeze
