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GameStop Explosion

By Erick Gutierrez

 

 

 

 

 

 

 

 

 

 

 

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Photo by: Jeepers Media

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Only 6 months ago the shares of GME (Gamestop Corporation) were under $5. In 2019 the GME stock crashed from 16 to a mere $4 and stayed that way for over a year. It was only recently that the price of a GME share skyrocketed and peaked at $347 a share. That's an increase of 8,000% from 6 months ago. But why was GameStop a hot stock all of a sudden? Actually, it wasn't the games or Gamestop. It is what happens when the internet community comes together to change the stock market.

Reddit’s online forum, wallstreetbets, are the people responsible for the explosion in Gamestop’s stock. At 8.7 million members, the forum is powerful when they make a collective action. On the forum, people were urged to buy shares of GME, and just to simply hold them. Their goal was to make a share worth $1,000, but the market for GME had already fallen.

Many who were actually investing made thousands from the GME spike. One Redditor posted an image of his earnings from the GME spike. It showed that he made $959,663  off of the $1,295 he invested as an individual.  Not only did some individual investors make thousands of dollars, but some hedge funds also made millions as well. Richard Mashaal and Brian Gonick are two hedge fund managers from New York who made 700 million in profits from the GME spike.

But did anyone lose anything? Short sellers have been a victim of massive losses because of Gamestop’s success. Short Sellers are people who borrow shares of stock, sell them, and buy them back when the stock price goes down and then return the stock to the person they borrowed it from. Their aim is for the stock price to go down, so the difference between the price at which they sell and buy is their profit. In total short sellers have lost a whopping 12.79 billion dollars from Gamestop this year alone.

One hedge fund, Melvin Capital, has also been losing a lot of money. In January they had lost 53% of their investment due to GME.

It is clear that the Reddit community has targeted Melvin Capital, and definitely won. It was also intentional that they damaged short sellers as well.

However the party is over. As of February 9th the price of GME is only 50$. It had officially crashed just as January ended. It plummeted from 325$ on January 29th to a mere 90$ on February 2nd. Although GME is no longer a hot topic, it greatly impacted the stock market and those who invested in GME. Many online Redditors on wallstreetbets have proved to take advantage of this event very well. And other bigger hedge funds and short sellers not so much. Millions of dollars have been gained and lost in what many people called a meme stock.