GameStop Short Squeeze
GameStop Short Squeeze
GameStop Short Squeeze
Contents
1Background
o 1.1Short selling and short squeezes
o 1.2GameStop
o 1.3Possible causes
o 1.4r/wallstreetbets
2Timeline
3Impact on hedge funds
4Link between Robinhood and Citadel Securities
5Reactions
o 5.1Investigations
o 5.2Lawsuits
6Other affected assets
o 6.1Stocks
o 6.2Cryptocurrencies
7See also
8References
Background[edit]
Short selling and short squeezes[edit]
See also: Short (finance) and Short squeeze
Timeline[edit]
GameStop Corp. (GME) closing share price[21]
Change
Day Price (USD) Volume
Net %
January
19.94 +2.25 +12.72% 14,927,612
11
January
19.95 +0.01 +0.05% 7,060,665
12
January
31.40 +11.45 +57.39% 144,501,736
13
January
39.91 +8.51 +27.10% 93,717,410
14
January
35.50 −4.41 −11.05% 46,866,358
15
January
39.36 +3.86 +10.87% 74,721,924
19
January
39.12 −0.24 −0.61% 33,471,789
20
January
43.03 +3.91 +9.99% 57,079,754
21
January
65.01 +21.98 +51.08% 197,157,946
22
January
76.79 +11.78 +18.12% 177,874,000
25
January
147.98 +71.19 +92.71% 178,587,974
26
January +199.5 +134.84
347.51 93,396,666
27 3 %
January −153.9
193.60 −44.29% 58,815,805
28 1
January +131.4
325.00 +67.87% 49,470,371
29 0
In January 2021, Reddit users on the r/wallstreetbets subreddit built the foundations for
a short squeeze on GameStop, pushing up the stock price significantly.[22] This occurred
shortly after a comment from Citron Research predicting the value of the stock would
decrease.[23] The stock price increased 1,500% by January 27 over the course of two
weeks, and its high volatility caused trading to be halted multiple times. [22][24]
In conjunction with the short squeeze, the resulting increase in options volume triggered
a gamma squeeze as a result of market makers needing to buy shares to hedge their
increasingly short exposure.[25] Basically, market makers seek to profit via arbitrage, by
ensuring the prices of stocks and options are linked, thereby keeping the
market efficient. One role of market makers is to write (i.e. create and sell) options to
investors seeking to buy them, and buy shares of the stock to maintain delta-
hedged position overall, thereby profiting off price discrepancies between the options
market and the stock market while remaining agnostic regarding price fluctuations.
After the GameStop stock closed up 92.7% on January 26, 2021, business
magnate Elon Musk tweeted "Gamestonk!!" along with a link to the r/wallstreetbets
subreddit.[26] A brief, sharp rise in the share price to over $200 followed Musk's tweet.
[27]
As of January 28, 2021, the all-time highest intraday stock price for GameStop,
excluding extended-hours trading, is $483.00 (nearly 190 times the record low of $2.57).
[28]
Citadel's Chicago headquarters. Users alleged conflict of interest between the company and Robinhood.
Bloomberg previously reported that 40% of Robinhood's revenues were derived from
selling customer orders to market making (a.k.a. liquidity providing) firms
including Citadel Securities and Two Sigma Securities, in a practice known as payment
for order flow.[66] Citadel Securities is the sister company to Citadel LLC, which invested
along with Point72 Asset Management 2.75 billion into Melvin Capital. [50] As Robinhood
restricted trading of GameStop shares, thereby limiting the growth of the stock's value,
users alleged that Citadel Securities directed Robinhood to do so. Citadel Securities
stated that they did not instruct any brokerage to suspend or otherwise limit trading. [67][68][69]
Reactions[edit]
Senator Elizabeth Warren (D-MA) called out the large investors and hedge funds who
were criticizing the rally, saying they "have treated the stock market like their own
personal casino while everyone else pays the price". [70] Warren also called on the U.S.
Securities and Exchange Commission to take a bigger stand, saying they must "act to
ensure that markets reflect real value, rather than the highly leveraged bets of wealthy
traders or those who seek to inflict financial damage on those traders" [71] and "to have a
healthy stock market, you've got to have a cop on the beat." [72] Similar sentiments were
expressed by Representative Alexandria Ocasio-Cortez (D-NY),[73] Senator Ted Cruz (R-
TX),[74] Representative Rashida Tlaib (D-MI),[75] Representative Ted Lieu (D-CA),
[76]
Representative Marjorie Taylor Greene (R-GA),[77] CNN anchor Jake Tapper,[78] Fox
Business host Charles Payne,[79] conservative political commentators Rush Limbaugh,
[80]
Ben Shapiro,[81] and Donald Trump Jr.,[82] and billionaire investors Mark
Cuban[83] and Chamath Palihapitiya.[84] Some lawmakers, such as Ocasio-Cortez, Cruz
and Ro Khanna (D-CA) also expressed frustration at Robinhood and others' decisions
to close individual trading of GameStop, among other stocks. [85] In an interview
with CNBC, Reddit co-founder Alexis Ohanian compared the rally to Occupy Wall
Street, saying that "it's a chance for Joe and Jane America—the retail buyers of stock—
to flex back and push back on these hedge funds." [86]
Numerous journalists have also drawn comparison to the movement.[87][88][89] Elon
Musk also criticized the general practice of stock shorting, calling it a "scam". [90]
Disgruntled users review-bombed the Robinhood app on the Google Play Store after it
halted the trading of GameStop securities, pushing its ratings down to one star.
[91]
However, Google deleted at least 100,000 such reviews, calling them "coordinated or
inorganic".[92] Protesters also showed up outside Robinhood headquarters in Menlo Park,
California, at the Securities and Exchange Commission headquarters in Washington,
D.C., and the New York Stock Exchange.[93]
Several celebrities and influencers also criticized Robinhood. OpenAI CEO Sam
Altman suggested the company change its name.[94] Chamath Palihapitiya, who passed
on early investment opportunities in Robinhood, opined that the founding co-
CEOs, Tenev and Bhatt, lacked integrity and urged his followers to
"#DeleteRobinhood".[95] Actor and rapper Ja Rule, who had used Robinhood since 2014,
said what the company did was "a fucking CRIME" [96] and called the situation "an
uprising".[97] Comedian and television host Jon Stewart, after joining Twitter, expressed
support for the movement in his first tweet. [98] YouTuber Philip DeFranco announced he
would be dropping his partnership with Robinhood, saying "Robinhood is never getting a
fucking spot on my show again regardless of the offer." [99] Barstool Sports founder David
Portnoy also criticized Robinhood for its lack of "free trading". [100] More generally, it was
recognized that Wall Street was now subject to the same populist vigor (afforded
by Internet connectivity) as the entertainment industry, politics, and so on. [101]
In an interview with CNBC, billionaire investor and hedge fund manager Leon
Cooperman, whose firm agreed to a $4.9 million insider trading settlement with the SEC
in May 2017,[102] angrily criticized the Reddit users' market behavior as a result of
the federal response to the pandemic and stated his opposition to capital gains tax
increases, saying "This fair share is a bullshit concept. It's just a way of attacking
wealthy people, and I think it's inappropriate ... We've all got to work together and pull
together."[103][104]
Investigations[edit]
On January 27, 2021, White House press secretary Jen Psaki said that Treasury
Secretary Janet Yellen and others in the Biden administration were monitoring the
situation,[105] and Speaker of the House Nancy Pelosi (D-CA) said that Congress will also
be reviewing it.[106] Senator Sherrod Brown (D-OH) announced that the Senate Banking
Committee would hold a hearing on the state of the stock market and the alleged
market manipulation surrounding the GameStop short squeeze. [107] Representative Byron
Donalds (R-FL) called for Congress to launch "an immediate investigation into Citadel,
L.L.C. and Robinhood".[108] Representative Maxine Waters (D-CA) announced she will
convene a hearing in the Financial Services Committee.[109]
Various news media across the political spectrum have raised concern over
potential conflict of interest in regards to Yellen, because she had received $810,000
from Citadel after the end of her term as Chair of the Federal Reserve, as well as $7
million in total from various firms for public speaking appearances. [110][111][112]
On January 29, the U.S. Securities and Exchange Commission announced it was
reviewing the incident with the aims "to protect retail investors" [113] from "abusive or
manipulative trading activity"[114] and "to identify and pursue potential wrongdoing". [115]
Lawsuits[edit]
Class-action lawsuit against Robinhood filed in the United States District Court of Southern New York [116]
Apart from GameStop, many other heavily shorted securities (as well as securities with
low short interest) saw increases in their prices:
a
Prices may be higher during extended-hours trading.
GME Resources, an Australian mining company, saw their shares increase significantly
over 50% during intraday trading, closing with a 13.3% increase on January 28. This
was speculated to have occurred as a joke given the identical ticker symbols on
different exchanges.[141]
Amateur traders in Malaysia were inspired by the GameStop short squeeze to target
shares for Malaysian latex glove makers on Bursa Malaysia as a countermove against
the devaluation of the sector by institutional investors following the lifting of a ban on
short selling in the country earlier in January 2021. Top Glove, Hartalega
and Supermax respectively recorded increases in shares as high as 15%, 10% and
9.2% during intraday trading on January 29, before closing with increases of 8.5%,
5.4% and 3.7%. The rally call was reportedly organized from r/bursabets, a Malaysian
offshoot of r/wallstreetbets named after the Malaysian stock exchange. [142][143]
Cryptocurrencies[edit]
In reaction to brokerages halting the buying of GameStop and other securities, the total
market capitalization of cryptocurrencies increased to over $1 trillion as Dogecoin's
value surged by 500%.[144] In addition, the price of Bitcoin, the world's largest
cryptocurrency, surged to more than $37,000 after Elon Musk endorsed it in his Twitter
bio, partially related to the surge of GameStop share price by Reddit users. [145]
See also[edit]
Business portal
Internet portal
Society portal
Short squeeze
Short-sell
Reddit
Economic bubble – Economic phenomenon of very high prices driven by speculation
Greater fool theory – the price of an object is determined by the local and relative
demand of a specific consumer and not from intrinsic value
Irrational exuberance – unfounded market optimism that lacks fundamental valuation
Tulip mania – 17th-century economic bubble in the Netherlands
Pump and dump – Form of securities fraud
Speculation – Engaging in risky financial transactions
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