GameStop Short Squeeze: A Tale of Market Upheaval

The GameStop short squeeze was a wild ride that left many investors stunned. It all started with a group of retail traders on the internet forum WallStreetBets, who discovered that GameStop's stock was heavily shorted by hedge funds.

These traders saw an opportunity to take down the big players and decided to buy up the stock, driving up its price. As the price rose, the short sellers were forced to cover their positions, which only fueled the price increase further.

The result was a massive short squeeze, with GameStop's stock price rising from around $17 to over $380 in a matter of days. The event was a perfect storm of market forces and internet-fueled speculation.

The short squeeze was not just a one-off event, but rather a symptom of a larger issue in the financial markets.

The GameStop short squeeze kicked off on January 13, 2021, with a stock price surge of nearly 50%.

This dramatic increase was followed by intense buying pressure from retail investors, who were coordinating their efforts through the r/WallStreetBets subreddit.

The stock's price continued to rise dramatically over the next two weeks, fueled by this buying pressure.

The surge in GameStop's stock price was a significant event, marking the beginning of the short squeeze that would captivate the attention of investors and the media.

The GameStop short squeeze had a significant impact on the market.

Retail investors, often referred to as "small-time traders", were able to drive up the price of GameStop stock by buying shares, thereby reducing the short positions held by hedge funds.

GameStop's stock price surged from around $17 to over $380 in a short period.

The market volatility caused by the short squeeze led to a decline in the value of hedge funds' portfolios.

The squeeze also forced several hedge funds to cover their short positions by buying back shares, which further fueled the price increase.

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GameStop's stock price skyrocketed to $500 per share on January 28, 2021, forcing many short sellers to buy back shares to cover their positions.

Retail investors, including those using Robinhood, were not the primary force behind the stock's increase, as Robinhood routes more than 50% of its orders through Citadel, a market-making firm that processes 39% of all U.S.-listed retail volume.

Most of the trades were for large blocks of 5,000 to 10,000 shares, worth $500K to $3-4 million, indicating institutional involvement.

Some combination of hedge funds and high-frequency/algorithmic traders likely followed the trend, contributing to the stock's surge.

Professional day traders who trade via retail brokers may have been involved, but their volume alone couldn't account for the bulk of the move.

The short squeeze scenario was fueled by short sellers buying back shares to cover their positions, further driving up the price.

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The GameStop short squeeze was a wild ride, and it's worth taking a look at the key players and outcomes.

Ryan Cohen, the founder of Chewy.com, was a major player in the GameStop saga. He was a key investor in the company and had a significant stake in its success.

GameStop's CEO, George Sherman, played a crucial role in the company's turnaround, but he ultimately stepped down in April 2021.

The short squeeze was led by retail traders, who banded together on social media platforms like Reddit's WallStreetBets to take on the hedge funds.

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Keith Gill, known online as "Roaring Kitty", played a significant role in popularizing GameStop as an investment.

He had been posting videos about GameStop on YouTube since July 2020, expressing a bullish stance on the company.

Ryan Cohen, the founder of Chewy, was appointed to GameStop's board in January 2021. His significant stake in the company as a shareholder made his involvement a positive sign for many retail investors.

His appointment was seen as a catalyst for change at GameStop, bringing fresh perspectives and ideas to the table.

On January 28, 2021, GameStop's stock reached its peak, hitting $500 per share in pre-market trading.

This astronomical rise forced many short sellers to buy back shares to cover their positions, further driving up the price in a classic short squeeze scenario.

The stock's rapid ascent was short-lived, as several stockbrokers, including Robinhood, restricted trading of GameStop and other heavily shorted stocks.

These restrictions were cited as a result of collateral requirements from clearing houses, which were struggling to keep up with the volatility.

GameStop's stock price was severely impacted by these restrictions, and its value plummeted in the days that followed.

Robinhood had to restrict buying activity because it didn't have enough cash on-hand to post a deposit, which is required by the DTCC to reduce credit risk.

The company was following existing laws and regulations, but it had to raise ~$1 billion of cash to meet the deposit requirement.

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Citadel earned a fortune from the trading activity, making ~$713 million after a short squeeze made AMC's stock price rise 10x.

The firm made money with the bid-ask spread and commissions, which is its goal as a market-maker.

Citadel also acted as a hedge fund, which creates conflicts of interest.

The NSCC handles the exchange of cash for securities, and the DTCC sets the rules for brokers, including the requirement for clearing deposits.

Researchers Wei Xua and Yu Zheng studied 500 to 1,500 short squeezes a year over the 1992 to 2013 period, showing that GameStop's short squeeze was longer and less newsflow driven than expected.

The technical setup of the GameStop short squeeze was quite consistent with other squeezes, suggesting that the markets are not broken.

There's no indication that the markets are broken, according to the researchers' assessment.

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The GameStop short squeeze was a wild ride, with prices skyrocketing from around $17 to over $380 in a matter of days.

Retail investors, including those on social media platforms like Reddit, played a significant role in fueling the surge.

As the price rose, short sellers were forced to cover their positions, which in turn drove the price even higher.

This created a feedback loop that made it difficult for short sellers to exit their positions, ultimately leading to significant losses.

The event highlighted the power of social media and online communities in shaping market trends and outcomes.

The GameStop short squeeze had far-reaching implications for the financial industry, highlighting the power of social media-driven retail investing.

It raised questions about market manipulation and the practice of short selling, which has been a topic of debate among investors and regulators.

The event led to increased regulatory scrutiny of online trading platforms, as authorities sought to understand the factors that contributed to the surge in prices.

The GameStop short squeeze also revealed the potential for retail investors to wield significant influence over the market, challenging traditional notions of who drives price movements.

It's a reminder that the financial landscape is constantly evolving, and new players can have a major impact on the market.

The media got it wrong - this wasn't a populist revolt against Wall Street. The order volume and sizes of share blocks traded don't support the narrative that retail investors were the main catalyst.

In fact, the real winners were Citadel, Silver Lake, and other trading firms. They made money from the squeeze on GameStop's share price.

Retail investors didn't do much to boost GameStop's share price beyond the initial stages. The Ontario Teachers' Pension Plan even made close to $500 million selling stock in Macerich Co following a similar squeeze.

The idea that retail investors were the heroes of this story is just not supported by the facts.

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Central banks have been running irresponsible monetary policy for decades, printing money and giving it to the wealthy, driving up asset prices and increasing wealth and income inequality. This has led to a situation where young people are struggling to own homes or start families unless they can win hyper-competitive jobs.

The coronavirus pandemic has further exacerbated this issue, with governments enacting lockdowns and shutting down the economy in response to a virus with a 98-99% survival rate that poses almost no risk to people below retirement age. This has resulted in companies firing or furloughing many employees, further depriving the younger generation of hope and meaning.

Governments have bailed out large corporations, allowing CEOs to become even richer while giving small stimulus checks to the general public. The peasants, as they're referred to in the article, are struggling to find jobs and are turning to day trading to survive.

A few savvy investors realized that GameStop was heavily over-shorted and ripe for a squeeze, and notified the peasant army on Reddit. This led to a buying frenzy, with the big financial firms taking advantage of peasant anger to make more money at the expense of other big financial firms.

The final step in this process is likely to be a stock market crash, which will result in the peasant army losing their money and further driving desperation, suicides, and a declining birth rate.

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