Shares of the video game store tested retail traders’ survival skills. But the meme stock madness also bamboozled the pros.
In the span of just a few regular trading sessions, with some stomach-churning pre-market action in between, GameStop once again made headlines. Roughly three years ago, Keith Gill — known as “Roaring Kitty” on the internet (mostly Reddit) — triggered a huge rally in the shares of a little known video game retailer called GameStop
GME [GameStop].
The Hidden Gem
Roaring Kitty took a big long position in GameStop for his belief that it was a company with a lot of potential. And at the same time, he blamed the big bad hedge funds for keeping a lid on share-price growth by shorting the living thing out of it.
Mr Kitty’s thesis caught the attention of fellow retail traders on Reddit’s r/WallStreetBets chat board, a place where self-described “degens” exchange fast-churning trading ideas. Soon after, shares were flying high, riding on gains of more than 2,000%. GameStop was set free and institutional investors got smoked.
These were the good old days of speculative pumps and the absolute power of like-minded individuals seeking the thrill of quick profit and adrenaline rush. And — it seems — we’re back at it again with the meme stock corner going fully bananas.
Roaring Comeback
Roaring Kitty’s X account switched the lights on after three years of silence. In a rather vague post, he published a drawing of a man leaning forward. Boy, did that get understood in all the possible ways. Shares took off by as much as 75% a day after that post went live. A breakneck rally went on for a few more days, evoking dreams of rocket ships and diamond hands.
A week later, none of that is there anymore. Shares are not only back where they were before the surge — they’re doing worse. The rollercoaster ride lifted the stock from $20 on Monday to $80 on Tuesday, a 300% pop per share.
By Friday, shares had briefly dipped below $20, pulling off a boomerang move and erasing 75% from the stock’s weekly peak.
And, this is how GameStop tricked retail investors into believing that this the GameStop rally 2.0. But, before that, it smacked professionals with huge losses on the way up.
Same Old, Same Old
Professional money managers had borrowed about 30% of all shares outstanding for — you guessed it — shorting purposes. The thing with shorting a stock, i.e. profiting from its decline, is that if you’re wrong, you can be wrong until your account is wiped out because shares could rise indefinitely.
GameStop short sellers were ironed out. They lost more than $2 billion in just two days, according to data analytics firm S3 Partners.
“After being down $862 million in mark-to-market losses yesterday,GME [GameStop] shorts are down another $1.36 billion in mark-to-market losses today,” S3 Partners’ Managing Director Ihor Dusaniwsky commented on X.
If only there was some similar experience in recent history that would inform hedge funds:
After all, they did make a movie (“Dumb Money”) about shorting GameStop. Yet, “smart money” did it again. Professional hedge funders weren’t the only ones to get knocked.
What Goes Up Must Come Down
The retail trading army on Reddit and X lost some serious cash, too. Just when shares were going in the other direction. Redditors on r/WallStreetBets initially cheered the first rays of the powerful upside swing. This sparked hopes of a revival before these same guys started flooding the board with screenshots of mounting losses as shares were nosediving.
What Happened and Why the Fast About-Face?
Other than the super frothy state of the highly inflated stock, what helped shares come back to earth was GameStop’s securities filing to sell some equity. Apparently, the C-suite of the video game store figured they could ride out the surge and issue up to 45 million shares that would dilute the number of existing shares by as much as 15%.
In another price-damaging filing, GameStop said that it expects net sales for the current quarter to land between $872 million and $892 million. The forecast is well below last year’s $1.237 billion and the consensus views for $1.045 billion.
With that said, GameStop shares are still in the green for the year, following the head-spinning trip to the moon and back. So, until next time?
We Want to Hear from You!
Let us know about your experience with that volatile beast! Do you own shares, when did you buy, and are you optimistic about the future of GameStop?
In the span of just a few regular trading sessions, with some stomach-churning pre-market action in between, GameStop once again made headlines. Roughly three years ago, Keith Gill — known as “Roaring Kitty” on the internet (mostly Reddit) — triggered a huge rally in the shares of a little known video game retailer called GameStop
GME [GameStop].The Hidden Gem
Roaring Kitty took a big long position in GameStop for his belief that it was a company with a lot of potential. And at the same time, he blamed the big bad hedge funds for keeping a lid on share-price growth by shorting the living thing out of it.
Mr Kitty’s thesis caught the attention of fellow retail traders on Reddit’s r/WallStreetBets chat board, a place where self-described “degens” exchange fast-churning trading ideas. Soon after, shares were flying high, riding on gains of more than 2,000%. GameStop was set free and institutional investors got smoked.
These were the good old days of speculative pumps and the absolute power of like-minded individuals seeking the thrill of quick profit and adrenaline rush. And — it seems — we’re back at it again with the meme stock corner going fully bananas.
Roaring Comeback
Roaring Kitty’s X account switched the lights on after three years of silence. In a rather vague post, he published a drawing of a man leaning forward. Boy, did that get understood in all the possible ways. Shares took off by as much as 75% a day after that post went live. A breakneck rally went on for a few more days, evoking dreams of rocket ships and diamond hands.
A week later, none of that is there anymore. Shares are not only back where they were before the surge — they’re doing worse. The rollercoaster ride lifted the stock from $20 on Monday to $80 on Tuesday, a 300% pop per share.
By Friday, shares had briefly dipped below $20, pulling off a boomerang move and erasing 75% from the stock’s weekly peak.
And, this is how GameStop tricked retail investors into believing that this the GameStop rally 2.0. But, before that, it smacked professionals with huge losses on the way up.
Same Old, Same Old
Professional money managers had borrowed about 30% of all shares outstanding for — you guessed it — shorting purposes. The thing with shorting a stock, i.e. profiting from its decline, is that if you’re wrong, you can be wrong until your account is wiped out because shares could rise indefinitely.
GameStop short sellers were ironed out. They lost more than $2 billion in just two days, according to data analytics firm S3 Partners.
“After being down $862 million in mark-to-market losses yesterday,
GME [GameStop] shorts are down another $1.36 billion in mark-to-market losses today,” S3 Partners’ Managing Director Ihor Dusaniwsky commented on X.If only there was some similar experience in recent history that would inform hedge funds:
- Not to bet on a red-hot stock, popular among the retail crowds, because you’ll get burned if they come after you with a short squeeze.
- Not to bet on a red-hot stock that’s thinly traded, because you won’t be able to easily get rid of your short position that’s draining your funds.
After all, they did make a movie (“Dumb Money”) about shorting GameStop. Yet, “smart money” did it again. Professional hedge funders weren’t the only ones to get knocked.
What Goes Up Must Come Down
The retail trading army on Reddit and X lost some serious cash, too. Just when shares were going in the other direction. Redditors on r/WallStreetBets initially cheered the first rays of the powerful upside swing. This sparked hopes of a revival before these same guys started flooding the board with screenshots of mounting losses as shares were nosediving.
What Happened and Why the Fast About-Face?
Other than the super frothy state of the highly inflated stock, what helped shares come back to earth was GameStop’s securities filing to sell some equity. Apparently, the C-suite of the video game store figured they could ride out the surge and issue up to 45 million shares that would dilute the number of existing shares by as much as 15%.
In another price-damaging filing, GameStop said that it expects net sales for the current quarter to land between $872 million and $892 million. The forecast is well below last year’s $1.237 billion and the consensus views for $1.045 billion.
With that said, GameStop shares are still in the green for the year, following the head-spinning trip to the moon and back. So, until next time?
We Want to Hear from You!
Let us know about your experience with that volatile beast! Do you own shares, when did you buy, and are you optimistic about the future of GameStop?
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