Reddit wants to send AMC, GameStop stock to the moon. Here’s how

Reddit wants to send AMC, GameStop stock to the moon. Here's how
Stacks of coins on a chalkboard with mathematical equations

The shares of GameStop and AMC have been on an epic rollercoaster ride. What’s going on over here.

Getty Images

For years, Wall Street investors have bet that the struggling video game retailer Gametop will fail. The move to buy online games will eventually spur doom, many thought. And the epidemic only seemed to make it worse. Wall Street was so sure that Gametop would fail, as they made it one of the highest bets on the market. However over the past few months, a group of Reddit users have been buying shares, increasing the value of GameStop and reducing large Wall Street bets. First, these forum traders bought because they believed the company was better than Wall Street dubbers. Then, as the value of the gametop rose, bad bets on Wall Street began to cost investors billions of dollars.

Now Reddit users want the price to go up even more, as they wage an epic battle against Wall Street.

At one point, Reddit users of the platform r / WallStreetBets shipped the stock over 14,300% (you read that right), Although it has gone through wild ups and downs. He has also spread his strategy to the struggling film series AMC and tech company BlackBerry. In his wake, these online market players have created Wall Street, which is a drama. Full of lambs, App Trading Disasters And Weird internet lingo As big-time investors have lost billions of dollars.

It’s a crazy story, told by Tesla CEO Elon Musk and CNBC’s financial commentator and former hedge fund manager Jim Cracker. There is even Michael Barrie, one of the subjects of the book and film The big short, Which is a major investor in GameStop.

Even Silicon Valley found its way to the middle of this mess. It is wild.


Now playing:
Watch this:

What does GameStop’s skyrocketing stock have to do with…



10:15

Despite the move being characterized as “insane” and a “Ponzi scheme,” GameStop’s stock has become the theater for a war between Wall Street and internet traders. Nearly everyone nearly all of them expecting it to fail. The questions are when, and who will be on the losing end when it does.

“We’re seeing a phenomenon that I have never seen,” Jim Cramer, a Wall Street commentator on CNBC and a former hedge fund manager, said during a segment as GameStock’s stock began rocketing up. And GameStop could be just the start. “It’s insane.”

It all started last week, when posters on the Reddit stock trading chat community r/WallStreetBets pushed up shares in the struggling game retailer. With much of Wall Street betting against GameStop’s success, r/WallStreetBets investors believed they could force a market rally by creating demand where there had been little before.

As a result, GameStop stock jumped more than 822%, from $17.25 per share at the beginning of the year to a high of $159.18 on Monday. Then it dropped by nearly half, only to rise back up to $147.98 on Tuesday. And then Musk tweeted about it to his 43 million followers (using that weird internet vocabulary, of course), and the price jumped 40% in after-hours trading. On Wednesday, it closed at $347.51 per share, before dropping again in after-hours trading.

On Thursday, it jumped even higher, to $483 per share, before halving again. Amid all the chaos, the New York Stock Exchange temporarily halted GameStop share trading more than a dozen times before midday Thursday. It ended the normal trading day down 44% to $193.60, only to jump back 

The Reddit community has also turned its eyes on BlackBerry, attempting to pull the same trick. So far, they’ve pushed shares up more than double from $6.58 per share, where they started at the beginning of the year. On Tuesday, the stock closed at $18.92. On Wednesday, it closed regular trading at $25.10, though it’s fallen since then to $14.65.

There’s also AMC. Reddit targeted that one, spawning the hashtag #SaveAMC on Twitter too. Its stock jumped from $2 per share last week to close trading at $19.90 on Wednesday. It too fell in after-hours trades, and after jumping on Thursday, fell again to close at $8.63.

App-based traders Robinhood, TD Ameritrade and WeBull responded to the fluctuations by restricting trades of GameStop, AMC and other fast-moving stocks on their services.

Robinhood drew particular ire, leading US Reps. Rashida Tlaib and Alexandria Ocasio-Cortez, as well as Sen. Ted Cruz, to criticize its decision. Some people had already raised concerns about Robinhood before, saying it “gamified” stock trading. Now it’s being accused of outright market manipulation, including through at least one class action lawsuit filed already. Robinhood, for its part, said Friday that market rules effectively forced it to put those restrictions in place.

It’s a lot to take in. So, here’s what you really need to know about GameStop, AMC and Wall Street.

How’d this happen?

gamestop-store610x458.jpg

GameStop is one of the largest video game retailers in the world, but it’s struggled to remain relevant in the age of online sales.

Effectively, the r/WallStreetBets crowd realized Wall Street made a huge mistake. People known as short sellers who were betting GameStop stock would fall had been too aggressive. 

The r/WallStreetBets crowd understood that if they could create artificial demand for GameStop shares with their own money, they could force Wall Street to recalibrate its bets, pushing prices even higher. And some investors who couldn’t even back up their bets against GameStop, would have to pay even more. 

As of Wednesday, there were 3.8 million members of the r/WallStreetBets community,  though it’s nearly impossible to determine how many people are involved in the GameStop, AMC and BlackBerry schemes.

What we do know is that all this activity appears to have created a “short squeeze,” where the short sellers betting against GameStop are being forced to buy more GameStop stock to cover their losses. That pushed the price up even more, which forces more short sellers to cover their losses, which pushes the price up even more. Some of the Reddit crowd believe that GameStop stock could reach into the thousands of dollars just because of this mechanism.

And that’s why we’re suddenly seeing GameStop’s value jump.

See also: GameStop’s stock spike fueled by slang from Reddit’s r/WallStreetBets community. Here’s what it means

How does this short selling work?

When people buy a stock normally, they’re betting it’ll rise or share enough profits that they’ll make more money than they put in.

Short sellers, or “shorts,” do the opposite. Shorts trade with borrowed shares and sell them, with hopes they can make money if the stock falls in the future.

Imagine Ian Corp. is a public company, and its shares are worth $10. A “short” would borrow shares of Ian Corp. and sell them for $10. Their bet is that Ian Corp. stock will actually drop below that — maybe to $4. If it does, then, they can buy the shares at $4 and pocket the other $6.

If Ian Corp. stock jumps to $25, then the lender who made this bet possible may push the short to cover their bet. That would mean the short effectively has to buy the shares at the new, higher price.

When a short is right, betting against a company, they can make a lot of money. But if they’re wrong, they can lose a lot more money too.

There are other options and tools to bet against a company’s future as well.

Tracking GameStop's stock price mid-January

GameStop stock from Jan. 19 to Jan. 25.


Google Finance

How much money did the GameStop shorts lose?

The losses appear to be tremendous. As of Wednesday, shorts seemed to have lost $5 billion betting against GameStop this year, according to Investopedia. About $1.6 billion, or about half, of those losses happened on Friday when the stock jumped 51%.

It’s also worth noting that GameStop began the year as one of the most shorted companies on the market.

That seems like a lot of money

It is, but what’s perhaps an even bigger indication of how dramatic these moves were, GameStop share sales were halted during Monday’s trading because they were moving too fast.

See also: How to choose a credit card

These wild swings won’t continue forever, will they?

Part of what’s driven this behavior is the popularity of retail investing, or when traders who aren’t Wall Street professionals buy and sell stocks. Stock trading apps, often with no fees, have made it easy for people to jump into the market. And social media has helped people to rally together, egging one another on to buy more and more of a stock.

“GameStop’s rally is one in a series of eye-catching market moves to stir concerns among fund managers, some of whom say trading by individual investors is pushing stock prices out of whack with fundamentals,” The Wall Street Journal wrote Monday.

How’s Wall Street responding?

gettyimages-1171297668

Many Reddit users accuse Wall Street investors of manipulating the market against them.


Getty Images

Big name trading apps like Robinhood, ETrade and others have reportedly struggled to remain online amid all the hysteria. TD Ameritrade on Wednesday acted to restrict the sudden spikes in demand, “out of an abundance of caution amid unprecedented market conditions.”

Robinhood has also come under particular scrutiny for appearing to severely restrict trades of some stocks while the market was wildly fluctuating Thursday. Politicians on both sides of the aisle in the US have called for an investigation into the app maker. Meanwhile, many angry Redditors say they’ll stop using Robinhood. Some have even threatened to join a class action lawsuit.

Nasdaq said it will halt trading on a stock if it finds a link to unusual activity on social media. The company said it sees its role as a “self-regulatory organization” is to make sure its markets act in a “legitimate” way. “Regulators kind of have to catch up with the technology that’s now available,” Nasdaq CEO Adena Friedman told CNBC on Wednesday. 

Throughout the past week, the markets have temporarily halted trades of GameStop and AMC stocks in particular because of the wide price swings and heavy volume.

I heard people are particularly angry at Robinhood. Why?

Of the stock trading apps, Robinhood appeared to be the most aggressive in shutting down purchases of highly volatile stocks like GameStop and AMC. The company hasn’t given clear reasons, other than vaguely saying it’s working in the interest of users. But the US government may not agree.

On Friday, the Securities and Exchange Commission said it’s “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.” 

The statement didn’t mention Robinhood by name, but the commission said it would “closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.” 

Robinhood declined to comment about the SEC statement. The White House referred questions about GameStop and brokerage firms to the Treasury Department, which houses the SEC.

What does Robinhood have to say?

On Friday, the company published a blog post explaining that the company it works with to help users trade stocks was what had set off all the drama. That company, a clearinghouse that helps facilitate the transaction of stocks and cash between buyers and sellers, requires Robinhood and other trading companies it works with to have a specific amount of money in deposits each day to cover their customer’s stock trades. That amount changes each day, based in part on market volatility.

Robinhood said that last week it was told it must increase its deposits tenfold. “That’s what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on,” the company said. The requirements were so large, it said, that it had to restrict trades in order to meet its requirements. 

“It was not because we wanted to stop people from buying these stocks,” the company added. “This is a dynamic, volatile market, and we have and may continue to take action to make sure we meet our requirements as a broker so we can continue to serve our customers for the long term.”

Has Robinhood gotten in trouble with the SEC before?

It has. A little over a month ago, on Dec. 17, the SEC charged Robinhood with “repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer order to them.” What that means in plain English is that Robinhood didn’t tell users that their share trades might be accessible by people competing against them in the market.

Robinhood made its name by offering stock trades without a standard commission that people often payed at other firms. The SEC said that between 2015 and 2018, Robinhood made misleading statements and omissions, including “in FAQ pages on its website, about its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as ‘payment for order flow.'”

The SEC estimated that Robinhood’s approach deprived users of $34.1 million, even after taking into account the savings from not paying a commission.

Robinhood agreed to pay $65 million to settle the charges “without admitting or denying” the SEC’s findings.

“There are many new companies seeking to harness the power of technology to provide alternative ways for people to invest their money,” Erin E. Schneider, director of the SEC’s San Francisco regional office, said at the time.  “But innovation does not negate responsibility under the federal securities laws.”

What do the companies think of all this?

GameStop didn’t respond to a request for comment. BlackBerry executives told MarketWatch it was “not aware” of any reason for the recent trading activity. BlackBerry did reach a settlement with Facebook earlier this month over a patent fight, though the terms were not disclosed.

Why are the Redditors doing this?

There’s the seeming easy money aspect, which is compelling in and of itself if you’re that comfortable with risk. But some of them are also framing this as a crusade against Wall Street. “We’re in a war,” one Redditor posted Wednesday. “A war for the redistribution of wealth.”

You promised me Elon Musk, how’s he involved?

Aside from being a prolific Twitter user, Musk has also recently learned he can drive people to various companies’ stocks. He tweeted about how much he enjoyed buying something for his dog off Etsy, and the stock jumped. Now he’s tweeted about GameStop, stirring up more frenzy.

Any other people’s opinions I should know about?

If you’re a fan of Comedy Central’s The Daily Show, Jon Stewart posted his first ever tweet in support of the Reddit crowd on Thursday. Among other things, he also said we clearly hadn’t learned from the financial crisis.

I went to r/WallStreetBets and saw this post of someone’s brokerage account worth tens of millions of dollars in GameStop stock.

That’s Keith Gill, or Roaring Kitty on YouTube, one of the first people to kick off this rally. He spoke to The Wall Street Journal, telling his story about how he never expected this to happen. 

He posts a screenshot of his share values from his ETrade brokerage every trading day, in what he calls a YOLO (“You only live once”) update. Many r/WallStreetBets members cite his holding onto shares despite stock fluctuations as inspiration for them to hold as well. “REMEMBER: If [he] Can also hold up through a 130% dip, so you can, ”began deploying stock fluctuations as a Reddit user.

“I felt this trade would be successful,” Gill told the WSJ, “but I did not expect what had happened in the previous week.”

It sounds crazy

this is. And it’s enough to just spin your head. For example, on Wednesday evening, the popular chat app Disord banned the r / WallStreetBets community from its service for violating its rules against hate speech and glorification of violence. Apparently, some of the nastier elements of the community had repeatedly broken the rules of Discord.

Around the same time, the group in charge of the R / Valkribits Reddit community Anyone else outside can be included who wishes to join., Effectively making it all private.

This appeared to shock investors, who suddenly sent GameStop and AMC stock to dive more than 30% in each hour of trading.

After an hour, the Reddit community was publicly available again, the Denizens formed a new Disord chat group, and Gametop and AMC stock were recovering from their sudden slap. If you put your phone down to watch a movie before doing so, you may have never done so.

Except you may have noticed that Elon Musk tweeted about how Discord was no longer cool (Discord eventually reversed his decision.)

Okay, and what about the big man?

Michael Berry himself is an interesting subject. He became famous for placing bets against the housing market before major recessions occurred around 2007 and 2008. He invested in GameStop, but also said he believed all this behavior was “unnatural, insane and dangerous.”

Of course, some members of Reddit say they see this fight on GameStop as their Michael Brie moment, making it all the more interesting.

Should i try to get into a frenzy?

It is always smart to consult a financial professional Before deciding to invest.

Correction January 25 at 5:52 pm PT: Short sale explanations to illustrate how the process works and that there are different ways to place bets against the company’s share price increases.

Leave a Reply

Your email address will not be published. Required fields are marked *