Bubble Language School

The Story of GME

Photo by Andrew Neel on Pexels.com

The story of GME (GameStop) is one of the most fascinating and unprecedented events in the history of the stock market. It began with a group of retail investors, organized on social media platforms like Reddit, who sought to counter the actions of institutional investors and hedge funds that were short selling GameStop stocks. The events that followed were a rollercoaster ride of soaring stock prices, legal battles, and intense media scrutiny.

GameStop is a video game retailer that had been struggling in recent years due to the shift towards digital game downloads and the pandemic-induced economic slowdown. As a result, many institutional investors and hedge funds had been betting against the company’s success by short selling its stocks. Short selling is a strategy where investors borrow shares of a company they believe will fail, sell them on the market, and then buy them back at a lower price to return them to the lender and pocket the difference.

However, in early 2021, a group of retail investors on the Reddit forum r/WallStreetBets discovered that some hedge funds had taken large short positions in GameStop’s stock. The investors saw an opportunity to band together and counter the hedge funds by buying up as many shares of the stock as possible, causing its price to skyrocket. This strategy, known as a short squeeze, can cause investors who have shorted the stock to suffer massive losses.

The retail investors’ strategy worked, and GameStop’s stock price soared from around $20 per share to a high of $347 per share in just a matter of days. This sudden surge in value caused huge losses for the hedge funds that had shorted the stock, leading some to file for bankruptcy.

The GameStop story quickly captured the attention of the media and the general public, and many people saw it as a David vs. Goliath battle between small retail investors and Wall Street giants. However, the situation also drew attention to the risks and flaws in the stock market, including the potential for market manipulation and the unequal power dynamics between retail investors and institutional investors.

The GameStop saga also sparked a broader conversation about the role of social media in finance and investing. The use of online forums and social media platforms to organize and coordinate buying activity was unprecedented and led to questions about the legality and ethics of such actions.

Despite the controversy, the GameStop story has inspired a new generation of retail investors who are eager to take on Wall Street and create change in the stock market. The movement has even led to the creation of new investment platforms, such as Robinhood, that cater to retail investors and offer commission-free trading.

The story of GME is far from over, and its impact on the stock market and investing will continue to be studied and analyzed for years to come. However, it has already become a defining moment in the history of the financial world, highlighting the power of collective action and the need for greater transparency and accountability in the stock market.

Table of Key Events:

DateEvent
June 2019DFV begins researching GameStop and buying shares
August 2020DFV posts on r/wallstreetbets about GameStop’s potential for a short squeeze
September 2020DFV purchases call options for GameStop
October 2020DFV invests over $50,000 in GameStop stock and options
November 2020DFV creates a YouTube video explaining his thesis on GameStop
December 2020GameStop announces Ryan Cohen’s appointment to the board, causing a spike in stock price
December 2020DFV increases his position in GameStop
January 11, 2021GameStop stock closes at $19.95 per share
January 22, 2021GameStop stock reaches a high of $76.76 per share
January 28, 2021GameStop stock reaches an all-time high of $347.51 per share
February 18, 2021GameStop CEO resigns
March 25, 2021GameStop announces plan to sell up to $1 billion in stock

Based on public information available on Reddit, it appears that DeepFuckingValue (DFV) has been a long-term holder of GameStop (GME) stock. He first started posting about his GME position on Reddit in September 2019, when the stock was trading around $3-$4 per share. He continued to post updates about his position and the company’s potential, even as the stock remained relatively stable throughout 2020.

However, in late 2020, GME stock began to rise rapidly, driven in part by a short squeeze initiated by retail investors on the Reddit forum r/wallstreetbets. DFV continued to hold his position in GME and even increased it during this period of volatility. He posted regular updates on Reddit about his thoughts on the stock, the company’s potential for growth, and his reasons for continuing to hold despite the high share price.

As of March 2021, DFV’s position in GME was reported to be worth millions of dollars, and he had become a cult figure among retail investors on Reddit and other social media platforms.

It should be noted that the information provided is based on publicly available information, and DFV’s actual positions may differ or change over time. Additionally, investing in stocks involves risk, and individuals should carefully consider their own financial situation and goals before making any investment decisions.

The History of Short Squeezes

The concept of a short squeeze has been around for decades, but it gained significant attention during the 2008 financial crisis when the mortgage bubble burst. Hedge funds that had shorted mortgage-backed securities faced massive losses when the market turned against them, and some were forced to sell other assets to cover their losses. This contributed to the broader market downturn that followed.

Apart from the GameStop short squeeze in 2021, there have been other notable examples of short squeezes in the past. One such example is the Volkswagen short squeeze in 2008, which occurred when Porsche, the luxury carmaker, secretly acquired a 74% stake in Volkswagen’s shares. The news of this acquisition caused a sharp increase in the demand for Volkswagen’s shares, which led to a short squeeze that caused the stock to surge by 348% in just a few days. The short sellers were forced to cover their positions at much higher prices, resulting in significant losses for them.

Volkswagen briefly became the most valuable company in the world by market capitalization before the bubble burst and the price came crashing down.

Another notable short squeeze occurred in 2013 when Tesla’s stock price surged by 300% in just a few months. This was partially due to the company’s impressive growth and financial results, but also because of the short sellers who bet against Tesla’s success. As the stock price continued to rise, these short sellers were forced to cover their positions, leading to a short squeeze that further fueled the stock price increase.

In 2020, there was a short squeeze of the stock of electric truck maker Nikola Corporation. The company’s stock price surged by more than 100% in a single day, which was partly due to the hype surrounding electric vehicle makers and the company’s announcement of a partnership with General Motors. However, the stock price increase was also fueled by short sellers covering their positions as they faced mounting losses.

Overall, short squeezes can occur in any market where short selling is allowed, and they can have significant impacts on the stock price and the market as a whole. While they can result in substantial gains for those who are long the stock, they can also lead to significant losses for short sellers.

These historical examples illustrate the potential risks of short selling and the potential for deep squeezes to occur when a large number of short positions are concentrated in a single stock. They also show how unexpected events, such as a company’s unexpected success or a sudden change in market sentiment, can trigger a short squeeze and cause prices to spike rapidly.

References:

  1. Romano, B. (2021, January 28). GameStop Stock Rally: What to Know. The Wall Street Journal. https://www.wsj.com/articles/gamestop-stock-rally-what-to-know-11611907800
  2. CNBC. (2021, January 28). GameStop shares surge after Robinhood says clients can trade again. CNBC. https://www.cnbc.com/2021/01/28/gamestop-shares-surge-after-robinhood-says-clients-can-trade-again.html
  3. Phillips, M. (2021, January 28). GameStop: How Reddit amateur traders took on Wall Street hedge funds. BBC News. https://www.bbc.com/news/business-55856790
  4. Popper, N. (2021, January 28). The GameStop Reckoning Was a Long Time Coming. The New York Times. https://www.nytimes.com/2021/01/28/business/gamestop-stock-trading-reddit.html
  5. Stevens, P. (2021, January 29). What Is a Short Squeeze and How Does It Work? The New York Times. https://www.nytimes.com/2021/01/29/business/short-squeeze-explainer.html
  6. Feuer, W. (2021, January 28). How a Reddit group blew up GameStop’s stock, creating billions in losses for Wall Street. CNBC. https://www.cnbc.com/2021/01/28/how-reddit-group-wallstreetbets-blew-up-gamestops-stock.html
  7. Bomey, N. (2021, January 28). GameStop’s surge is breaking Wall Street norms. Here’s what you need to know. USA Today. https://www.usatoday.com/story/money/2021/01/28/gamestop-stock-price-why-surging-breaking-wall-street-norms/4293150001/
  8. Cooper, H. (2021, January 29). GameStop: How Reddit found the stocks hedge funds bet against. BBC News. https://www.bbc.com/news/business-55872817
  9. Sorkin, A. R. (2021, January 29). Opinion | The GameStop Reckoning Was a Long Time Coming. The New York Times. https://www.nytimes.com/2021/01/28/business/gamestop-stock-trading-reddit.html
  10. Kang, C. (2021, January 28). Reddit’s GameStop Wins Indicate a Coming of Age for Social Media. The New York Times. https://www.nytimes.com/2021/01/28/technology/gamestop-reddit.html
  11. Phillips, M. (2021, February 4). GameStop: The battle between Wall Street and amateur traders. BBC News. https://www.bbc.com/news/business-55894304
  12. Lutz, A. (2021, January 28). The GameStop stock frenzy, explained. Vox. https://www.vox.com/22250487/gamestop-stock-price-reddit-explained
  13. Hanbury, M. (2021, January 29). Inside the Reddit group that really shook Wall Street. Business Insider. https://www.businessinsider.com/gamestop-reddit-wall-street-bets-inside-trader-jokes-memes-2021-1
  14. Stevens, P. (2021, February 1). Wall Street Is Inhaling Crow as Amateur Traders Take on the Pros. The New York Times. https://www.nytimes.com/2021/02/01/business/wall-street-hedge-funds

Leave a Comment

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