r/WallStreetBets Saving GameStop and Causing Stock Market Fiasco

What is GameStop?

GameStop is a well-known American video game retailer that operates in the United States, Canada, Australia, and New Zealand. Like many retail stores, GameStop (GME) suffered significantly at the hands of the COVID-19 pandemic. This was a result of many video game fans having to purchase their games online from other stores due to lockdown and coronavirus restrictions.

How does this relate to the stock market?

This is where professional investors come into play. Professional stock market investors made a bet that GameStop was doomed to fail—in order to gain as much money as possible from the retailer before its bankruptcy, professional investors used a tactic called short selling.  According to NBC, short selling is when professional investors “borrow shares of stock to sell and then buy back later so they can return it, which lets them pocket profits if the stock price goes down”. Basically, professional investors made a huge bet that GameStop would fail and ended up over-short selling GME shares for as low as $4 per share.

Why is Reddit involved in all of this?

Reddit is a social media site where users, called redditors, gather online subreddits to discuss, upload posts, comment, etc. One subreddit in particular, r/WallStreetBets, is dedicated towards discussing stock market trading. Redditors from r/WallStreetBets tend to go after short sellers and saw GameStop as an opportunity to make massive amounts of profit. When professional investors short sell a company, they purchase stocks while they’re high and bet that they will fall so they can buy them back for cheaper and thus making profit. This is risky because if the stocks were to increase rather than fall these professional investors would lose money. Redditors from r/WallStreetBets worked together to purchase mass amounts of GME stocks. As soon as there was a rise in share price, others joined in. A year ago, a single GME share was worth $4 and now that price has risen to $347 as of January 28.

Who is Ryan Cohen?

One of the reasons behind the sudden purchasing of GME shares is because of the popular business man and founder of Chewy, Ryan Cohen. Cohen began purchasing stocks from GameStop in September of 2019, with the hopes that the failing company could rise and rival Amazon. On January 11, GameStop named Cohen and two other individuals to its board of directors, which further incited people to invest in GME stocks.

Why is this event significant?

Over the past six months, GME prices have gone up by 8,000% , resulting in GME short sellers reportedly losing $23.6 billion in January alone. This bizarre event has also become a movement and form of protest against Wall Street and hedge funds which many refer to as stock market “bullies”.