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Trading in shares of video game retailer GameStop (GME) was briefly halted on Friday, as it climbed more than 70%, in part thanks to enthusiastic support from a group of day traders on Reddit.
The stock has risen more than 250% since the start of the year, rising sharply last week after GameStop announced that Chewy CEO Ryan Cohen is joining its board, CNBC reported. Short seller Citron Research predicted the price would drop, but Reddit board members r / wallstreetbets, who had sparked interest in the stock, slammed Citron on the Reddit bulletin board and continued to praise the action on social media.
The hype generated by r / wallstreetbets has helped create what is known as a “short squeeze” on the action of GameStop. A short squeeze works like this: Some investors, known as shorts, basically bet that a company’s stock will fall. These investors borrow shares from other investors and sell them – with the intention of buying them back when prices fall, then returning them to the original owner. However, the problem with shorting is that the losses are theoretically infinite; If a stock starts a bull run, some short sellers will abandon their short sale and buy the higher priced stock to return. This, in turn, drives up the stock, burning off any other shorts that are left in the stock, some of which may, in turn, choose to cover their own shorts.
GameStop is the best-selling stock on the market, CNBC said, citing FactSet. Over 138% of its stocks are sold short, making it a prime target for short squeeze. GameStop’s Reddit-related power surge triggered a breaker shutdown when it increased 69 percent (nice) Fridays around 12:45 p.m. ET.
Citron said on Friday he would no longer comment on the GameStop action because of “the angry mob that owns this action.” Publisher Citron Research Andrew Left wrote in a note to readers that the backlash had included criminal activity he planned to report to the Securities and Exchange Commission, which included the harassment of underage children as well as financial crimes.
According to Bloomberg, the past 10 days have been the most volatile time for GameStop action in its history. At the close of markets on Friday, GSE was up more than 50% from its close on Thursday, with a market cap of $ 4.5 billion.
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