GameStop Stock set a record when short sellers clash with Redditors

GameStop’s stock price, which had steadily declined over the past five years before the rally began last fall, closed at an all-time high on Friday after a very volatile week in which day traders were staged by Reddit Cause a lot of trouble Investment companies sell stocks short.

GameStop stock on the New York Stock Exchange halted twice on Friday, but not before the price peaked at $ 73.09. It closed at $ 65.01, beating the previous record of $ 63.30 set on December 24, 2007. GameStop closed Thursday at $ 43.03, and when the rally began last week, it was around $ 20 a share.

What’s going on? Well, at the start of September, the stock started to recover out of the $ 5 recession where it had been for just over a year. This is because dog food mogul Ryan Cohen (founder of Chewy, who sold it for $ 3.35 billion in 2017) has just bought a 10% stake in a besieged video game retailer. Since then, he and two allies have joined the GameStop board of directors, and these positions could help Cohen at work. His difficult talk About where GameStop prioritizes. Cohen says the Texas-based company needs to completely abandon its continued focus on brick-and-mortar retail and move to a “technology-driven vision”.

Behind the striking rise in stock prices this week, Ars Technica Reports, Is the “enormous short pressure bubble.” In the investment practice known as short selling, the party borrows shares of shares and sells them instantly at the current market price; When the price later falls (as the seller is betting short), the short seller buys the same number of shares to return them to the lender – and makes money by having to pay less than the shares were worth at the time of borrowing.

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In this case, GameStop’s stock price rises, forcing these short sellers to buy more shares at a higher price to cover their positions. This has put GameStop’s stock price into an upward spiral that analysts such as Michael Bachter of Wedbush Securities believe it will end quickly.

“Smart money has already entered and may have gone out.” Bacher told Ars.

Smart money entered over a year ago, Motherboard reports. Some of them came from investors in WallStreetBets subreddit, A community that designs itself as “like 4Chan founded Bloomberg Terminal”. There is a redditor Post screenshots From 2019 to purchase $ 50,000 GameStop Stock, when the share price was less than $ 1.

This is because WallStreetBets (and others) concluded that if they bought GameStop, the short sellers would eventually have to cover their positions together, driving the price up. “It is likely that there is no original GameStop share in the market,” Notice one Redditor. In other words, GameStop has released more stocks than is actually available for purchase. Higher demand plus scarcity of supply equates to a higher price, of course, and short sellers are buying the shares to cover their debts – along with, of course, the interest of new investors looking to sell the shares – that is what drives demand.

Citron Research is one such short seller, and on Friday the company said it would no longer comment on GameStop stock because the “angry mob” made it a dangerously volatile stock. Reported by Bloomberg. Citron also alleges that these miscreants tried to hack the company’s Twitter account, after the company slammed the stock on Tuesday and then drew up plans for a live broadcast on social media to discuss this.

Friday’s closing price gave GameStop a market capitalization of $ 4.5 billion, nearly 20 times higher than its value in late July. But none of this means GameStop has actually recovered or saved itself as a business. Actually, Its most recent quarterly earnings report, In December, revenue showed still declining and increasing losses per share from the same numbers in the previous year.

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In the past two years, the company has owned Close more than 750 stores Of the 5,700 sites it had as of 2019. In the same year, the company eliminated senior executives and Over 100 corporate employees were firedIn a layoff tour that, too Devoured the employees of GameStop-owned Game Informer.

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