Gamestop, the video games store, has seen its shares skyrocket
Credit: AP
Short-sellers betting against US video games retailer GameStop lost $1.6bn (£1.2bn) in a single day last week after meme-fuelled, day-trading investors on Reddit piled into the stock.
Investors on forum WallStreetBets, where amateur traders share tips, went on a buying spree in direct opposition to a group of wealthy investors who are counting on the stock price to plunge.
The bidding frenzy pushed GameStop to record highs on Friday, up more than 300pc so far this year.
The surging share price has drawn comparisons to the stock market highs of the dot-com boom and stoked fears of a retail investing bubble
Over the past year, short-sellers — who make bets that shares will go down — have lost out on $4.4bn, according to analysts S3 Partners.
The stock closed 18pc higher on Monday, briefly touching a record high of $159.18, and has more than quadrupled this month.
The company has extended its surge in premarket trading on Tuesday, climbing as much as 30pc from Monday’s close as bullish day traders kept the upper hand over short sellers.
Much of the movement is down to WallStreetBets, a web forum where amateurs trade stock tips, filled with memes and in-jokes. One user, showing a screenshot of their trading account, wrote: “Entire savings on this. Moon bound boys” followed by rocket ship icons. “Zoom zoom zoom we are going to the moon,” another read.
Down $1.5 Million from today’s peak, but I’M STILL HERE, AND I’M NOT SELLING from r/wallstreetbets
Posts such as these encourage users to “buy the dip” and to hold at all costs even as shares tumble.
In the bizarre page, full of screenshots of Robinhood trading accounts and hashed out investment theses, Redditors pray their investments will be rewarded with “tendies” slang for profits coming from “chicken tenders”.
The $5bn firm is now the 18th most shorted US stock, behind Google-owner Alphabet, and one of the most expensive to short.
While the short-sellers are nursing losses, analysts believe the war between shorts and buyers is not yet over
Ihor Dusaniwsky, of S3 Partners, said: “GameStop is a unique situation on the short side.”
While investors who have “shorted” shares have been hit by massive losses, other short sellers have also bought in, seeing the shares as massively overbought “in the hopes of a pullback from this stratospheric stock price move”.
The problem for short-sellers is that when shares go up, their costs also go up. Short-selling works by borrowing shares, for a fee, and then selling them immediately.
If the shares go down, you can buy them back and take a profit. If they go up, it costs money to hold on in the hope that ultimately they will fall.
The huge short interest has meant investors have been shorting at times more than GameStop’s entire float value.
Susannah Streeter, an analyst at Hargreaves Lansdown, said: “Many short sellers were betting that this Texas-based company with more than 5,000 stores in malls across the world could be badly hit by the pandemic downturn.”
While betting against a struggling US retailer in the middle of a pandemic may seem like a reasonable thesis, it is not only Reddit users who have bought into GameStop.
One high profile investor is Michael Burry, who was featured in the film The Big Short. Another is activist investor Ryan Cohen, whose investment in GameStop was up more than $600m at one stage on Monday.
Front page of the WSJ. Well done fellow degenerates. from r/wallstreetbets
The squeeze on short-sellers has even seen one, Melvin Capital, take in $2.75bn in new investment after losing 30pc of its value.
But the whipsaw movements, and the day-traders piling into high-risk, has analysts comparing the moves to the dot-com boom.
“The only thing I’ve seen like it was in 2000 when well over half the large team I was in were buying tech stocks like they were going out of fashion,” Jim Reid, of Deutsche bank, said in a morning research note.
“21 years on and a new generation are probably doing even crazier things.”
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