Gme Short Squeeze 2024: Understanding the Frenzy and its Consequences

The GameStop short squeeze of 2024 was a wild ride that caught many investors off guard. A short squeeze occurs when a heavily shorted stock experiences a sudden surge in price, forcing short sellers to buy back shares to limit their losses.

Short interest in GameStop shares peaked at around 143% in January 2024. This means that nearly 1 in 7 shares of GameStop were being shorted by investors.

Investors who had bet against GameStop's success found themselves scrambling to cover their positions as the stock's price skyrocketed. This led to a massive buying frenzy that pushed the stock's price even higher.

The sudden price movement was largely driven by the actions of retail investors, who had been buying up shares of GameStop in the hopes of profiting from the short squeeze.

GameStop's stock price had declined due to competition from digital distribution services and the COVID-19 pandemic, leading many institutional investors to short-sell the stock.

In January 2021, approximately 140 percent of GameStop's public float had been sold short, a rare occurrence that had only happened 15 times in the prior 10 years.

Analysts at Goldman Sachs noted that short interest exceeding 100 percent of a company's public float is a rare sight, and it's clear why: it means many shares are "borrowed" multiple times as part of the short selling.

GameStop's stock price had a significant rally after investor Michael Burry's Scion Asset Management acquired a 3.3-percent stake in the company and wrote to the board of directors, identifying overlooked value.

Ryan Cohen's 9-percent investment in GameStop in August 2020 also led some to believe the stock was undervalued, and his subsequent joining of the board triggered a stock rally in January 2021.

The short interest on GameStop peaked over 140% at one point, a rare and significant level of short selling that would eventually lead to a clash between retail investors and institutional hedge funds.

The market reaction to the 2024 GME short squeeze was intense, with many stocks experiencing significant price increases. The frenzy was sparked by the power of retail investors, who used social media platforms like Reddit's WallStreetBets to coordinate trades and encourage others to buy GME stock.

Some of the most notable price increases included AMC Entertainment Holdings, Inc., which saw a 480.1% price increase, and Koss Corporation, which experienced a 3,715.9% price increase. Other stocks, such as BlackBerry Limited and iRobot Corporation, also saw significant price increases of 104.9% and 99.5%, respectively.

Retail investors were not the only ones affected by the market reaction. Hedge funds and other institutional investors also experienced significant losses, with some reporting losses of up to 400.0% on their investments. The volatility of the market was so great that some stocks, such as GameStop itself, experienced price swings of over 250%.

Here's a list of some of the top-performing stocks during the GME short squeeze:

The market reaction to the GME short squeeze was a testament to the power of retail investors and the impact of social media on the financial markets. As the dust settles, it will be interesting to see how this event will shape the future of investing.

The price and volume increase of certain stocks was a notable aspect of the market reaction to the GameStop short squeeze. Many stocks saw significant price increases, with some even reaching as high as 3000% in a short period of time.

For example, BB Liquidating Inc. saw its price increase from $0.01 to $0.30, a 3000% increase. Similarly, Express, Inc. saw its price increase from $1.79 to $13.97, a 680.4% increase.

Here's a list of some of the stocks that experienced significant price increases:

The increase in price and volume was not limited to these stocks, however. Many other stocks saw significant gains as well, with some even reaching all-time highs.

Retail investors suffered significant losses as a result of the GameStop short squeeze frenzy. Many retail investors, including those on r/wallstreetbets, bought shares of GameStop and other affected securities at their peak prices, only to see them decline rapidly.

The stock prices of GameStop, AMC, and BlackBerry declined substantially, with GameStop shares losing 60 percent of their value on February 2, 2021. This decline led to significant losses for many retail investors, with some even losing a majority of their savings.

Some r/wallstreetbets users held onto their shares despite the decline, arguing that they would increase in value or send a political message. However, this decision ultimately led to further financial losses for these investors.

The GameStop stock price fell 34 percent to $120.34 per share on March 24, 2021, after earnings were released and the company announced plans for issuing a new secondary stock offering worth up to $1 billion. This decline was a significant blow to retail investors who had held onto their shares in hopes of recouping their losses.

Investigations into the 2024 GameStop short squeeze are ongoing, with various government agencies and regulatory bodies taking a closer look at the situation. The U.S. Securities and Exchange Commission (SEC) announced in 2021 that it was reviewing the incident to protect retail investors from abusive or manipulative trading activity.

Regulators are also examining the role of short selling and the use of social media in trading. The GameStop short squeeze has highlighted the need for reforms in the financial system, particularly in these areas.

The SEC is working with other regulators, including the Commodity Futures Trading Commission (CFTC), to assess whether any rules have been broken. The CFTC is specifically looking into the role of derivatives trading in the frenzy.

The investigations have led to calls for greater transparency in the way brokers operate and changes to the way that brokers are compensated.

A number of lawsuits were filed in response to the GameStop short squeeze frenzy. The first class-action lawsuit was filed against Robinhood on January 28, 2021, for halting trading on GameStop stock.

The lawsuit claimed that Robinhood "purposefully, willfully, and knowingly removing the stock 'GME' from its trading platform" deprived retail investors of the ability to invest in the open-market. Several other investors began using the app DoNotPay to automatically join the lawsuit.

By February 2, 2021, Robinhood was facing 34 separate class-action lawsuits. The Judicial Panel on Multidistrict Litigation consolidated these and other lawsuits in the Southern District of Florida.

Judge Cecilia Altonaga ruled that investors could not pursue negligence and breach of fiduciary duty claims, citing Robinhood's customer agreement which allowed for restrictions on trading.

Retail investors who bought shares of GameStop and other affected securities as prices peaked or shortly afterwards suffered significant losses. Many of these investors held onto their long positions despite declining stock prices, following calls on r/wallstreetbets to do so.

Mark Cuban, an entrepreneur, even encouraged GameStop buyers to hold onto their stock if they could. This advice had devastating consequences for those who took it.

A short squeeze can also lead to substantial losses for investors. This occurs when short-sellers are forced to repurchase shares at a higher price than they sold them for.

The potential downside of a short squeeze is theoretically limitless. Short-sellers can incur substantial losses if they continue to hold their positions.

Here are the key consequences for investors:

Internal communications revealed a concerning trend between Citadel and Robinhood.

On September 27, 2021, Citadel released a statement rejecting "Internet conspiracies and Twitter mobs" that alleged the firm pushed Robinhood to limit trading in GameStop.

This statement was made as the hashtag #KenGriffinLied was trending on Twitter.

Internal Robinhood messages showed executives "scrambled to talk to Citadel CEO Ken Griffin" on January 27, 2021.

The messages indicate that Citadel applied pressure on Robinhood to restrict trading.

Robinhood President and COO Jim Swartwout described the conversation with Citadel as a "total mess."

A call was set up between Robinhood CEO Vlad Tenev and a redacted person at Citadel Securities.

After the call, Swartwout expressed his disappointment in the partnership, saying "it's difficult to have a partnership when these kind of things go down this way."

During a Congressional hearing, Ken Griffin denied that anyone in Citadel pressured Robinhood to restrict trading, stating "absolutely not."

Hedge funds played a significant role in the 2021 short squeeze, with some realizing substantial profits from the market activity surrounding GameStop and related securities.

Senvest Management, a hedge fund, made a profit of $700 million after exiting its position in GameStop after Elon Musk's tweet, "Gamestonks!".

BlackRock, a large asset manager, had a 13-percent stake in GameStop, worth $2.6 billion at the peak, and likely benefited from the short squeeze.

Mudrick Capital Management made a profit of close to $200 million on its holdings of AMC debt and $50 million from writing call options on AMC and GameStop stock.

The Church of Jesus Christ of Latter-day Saints, through its investment manager Ensign Peak Advisors, saw the value of its 46,000 shares of GameStop jump 900 percent.

On January 28, Robinhood halted purchases of GameStop, AMC Theatres, BlackBerry Limited, Nokia Corporation, and other volatile stocks from its trading platform.

Robinhood announced it would begin to allow "limited buys" of the affected securities starting the following day, but it was unclear what "limited buys" entailed.

Trading platforms such as UK-based Trading212 and Israel-based eToro blocked buys of GameStop and other stock while continuing to allow sales.

Webull halted buy orders for stocks affected by the squeeze, but soon thereafter allowed orders to continue.

Increased collateral requirements from clearing houses were cited as the reason for the restrictions by several brokerage firms, including Robinhood.

The Depository Trust & Clearing Corporation (DTCC) increased the total industrywide collateral requirements from $26 billion to $33.5 billion due to the large trading volumes in specific stocks.

Robinhood raised an additional $1 billion to protect the company from the financial pressure placed by the increased interest in particular stocks and meet the collateral requirements of clearing houses.

As of January 29, Robinhood was still imposing limits on the trading of GameStop, AMC, and BlackBerry stocks.

On January 30, Robinhood announced it had added purchase restrictions to 50 securities, including companies such as Rolls-Royce Holdings and Starbucks Corporation.

However, on January 31, Robinhood announced it had removed several of these restrictions and would only limit purchases of eight securities.

BlackBerry executives sold more than $22 million in stock since January 1, with no allegation of insider trading. Three BlackBerry executives sold nearly $1.7 million of the company's stock.

GameStop Chair Kathy Vrabeck and board member Raul Fernandez sold shares from January 13 to 16, making $1.4 million. GameStop CEO George Sherman owns over 2.3 million shares in the company.

The trading activity surrounding GameStop and related securities was conducted by hedge funds, who made substantial profits from the short squeeze. Hedge fund manager Senvest Management made a profit of $700 million, exiting its position after Elon Musk tweeted "Gamestonks!".

BlackRock had a roughly 13-percent stake in GameStop, which was worth $2.6 billion at the peak. The Church of Jesus Christ of Latter-day Saints, through its investment manager Ensign Peak Advisors, bought 46,000 shares of GameStop in 2020, and saw the value of its investment jump 900 percent.

Here's a list of other companies that experienced sharp price increases:

These companies, among others, experienced significant price increases due to the short squeeze and subsequent trading activity.

Reddit played a crucial role in the GameStop short squeeze frenzy, with the r/WallStreetBets subreddit serving as the epicenter of the movement.

The community on WSB had been discussing GameStop for months before the short squeeze happened, providing a platform for retail investors to share their ideas and coordinate their actions.

Social media platforms like Twitter and Facebook helped amplify the message, making it a trending topic and creating Facebook groups to discuss the movement.

The democratization of information was a key driver of the GameStop frenzy, allowing retail investors to access the same information as Wall Street traders thanks to platforms like Reddit.

Memes like "diamond hands" and "to the moon" became rallying cries for the movement, helping to spread the message and create a sense of community among retail investors.

The support of politicians like Alexandria Ocasio-Cortez and Ted Cruz also helped bring attention to the issue, with both expressing their support for the movement.

Robinhood and Citadel have been accused of a conflict of interest.

The issue revolves around Robinhood's relationship with Citadel Securities, which is a market-making firm that buys and sells securities on behalf of its clients.

40% of Robinhood's revenue comes from selling customer orders to firms like Citadel Securities, in a practice called payment for order flow.

This raises concerns about whether Robinhood is prioritizing its own interests over those of its customers.

Citadel Securities is a sister company to Citadel LLC, which invested $2.75 billion into Melvin Capital.

This connection has led some to question whether Citadel Securities was influencing Robinhood's decisions.

Robinhood denied being pressured by Citadel Securities to restrict trading of GameStop shares.

However, users on Reddit and other social media platforms accused the company of doing so.

A U.S. District Court dismissed a class action lawsuit against Robinhood and Citadel Securities, ruling that investors failed to show collusion.

This decision has not addressed the underlying concerns about the conflict of interest between the two companies.

Short selling is a risky strategy where investors borrow shares to sell them, hoping to buy them back at a lower price to return to the lender. This strategy can result in unlimited losses if the stock price keeps rising.

The potential loss is theoretically infinite if the stock price keeps rising, making short selling a high-risk investment strategy. This was evident in the case of GameStop, where hedge funds suffered significant losses due to a short squeeze.

A short squeeze occurs when investors who have shorted a stock are forced to buy shares to cover their losses, driving the stock price up even further. This can create a feedback loop that drives a stock's price down, as seen in the case of GameStop.

The short interest ratio is a metric that reflects the level of short interest in a stock. A high short interest ratio indicates that a large number of investors have shorted the stock, which can create a volatile situation if the stock price starts to rise.

Here are some key points to consider when it comes to short selling and the short interest ratio:

Attempting to predict the next short squeeze is a highly risky strategy that is not recommended. It's essential to understand the risks involved in short selling and the short interest ratio to make informed investment decisions.