Reddit and Elon Musk have driven up GameStop’s stock. Why AMC and BlackBerry are Next

On Monday morning, a group of Reddit users decided to gamble on the market and boost the share of video game retailer GameStop – to nearly three times its average in recent months. Then they started expanding their strategy to the struggling movie channel AMC and the once popular smartphone maker BlackBerry. And it worked. So well, in fact, that the investment has even generated its own jargon and accumulated a set of memes. What is happening?

Despite the move being described as “crazy” and “Ponzi scheme”, GameStop is now one of the biggest bets Wall Street traders have made in recent times, with almost all expect it to fail. It all started last week, when posters on the Reddit stock market discussion community WallStreetBets attempted to boost the struggling game retailer’s shares. With much of Wall Street betting against GameStop’s success, WallStreetBets investors thought they could force a market rally into create demand where there had been little before.

The result: GameStop stock jumped more than 822%, from $ 17.25 at the start of the year to a high of $ 159.18 on Monday. Then it fell nearly halfway, rising to $ 147.98 on Tuesday. And then Tesla CEO Elon Musk tweeted about it (using this vocabulary that we mentioned), and the price jumped 40% in after-hours trading. On Wednesday morning, it hit new highs, hovering around $ 315 per share.

The Reddit community has also turned its eyes to BlackBerry, attempting to pull the same trick. So far, they’ve hiked stocks more than double from $ 6.58, where they started at the start of the year. On Tuesday, the stock closed at $ 18.92. On Wednesday, it hovers around $ 22.

There is also AMC. Reddit targeted that one, generating the #SaveAMC hashtag on Twitter as well. Its stock fell from $ 2 a share last week to around $ 14 on Wednesday morning.

Here’s what to understand about GameStop, AMC, and BlackBerry.

How did it happen?

Indeed, the WallStreetBets crowd has created an artificial demand for GameStop and BlackBerry stocks with their own money. The WallStreetBets community has 2.2 million members, although it is almost impossible to determine how many people are involved in the GameStop and BlackBerry projects.

What happens is that by quickly buying a lot of GameStop shares, the price goes up. It’s normal. With GameStop, however, there are also a lot of short sellers, or people who are actually betting that the stock will go down rather than up.

But there is a problem. If the price of GameStop rises too too quickly, short sellers – those who bet on GameStop’s difficulties – are forced to buy even more shares to cover their losses. This drives up the stock even more.

This is how we suddenly see GameStop’s value jump.

See also: GameStop’s stock spike powered by slang from Reddit’s WallStreetBets community. This is what it means

What is a short seller?

When people buy a stock normally, they are betting that it will increase or share enough profit to make more money than they invest.

Short sellers, or “shorts,” do the opposite. Shorts trade with borrowed money and sell the stocks, hoping to make money if the stock goes down in the future.

Imagine that Ian Corp. is a public company and its shares are worth $ 10. A “short” would borrow shares of Ian Corp. and would sell them for $ 10. Their bet is that the shares of Ian Corp. will fall below, perhaps to $ 4. If so, they can buy the shares for $ 4 and pocket the remaining $ 6.

If Ian Corp. climbs to $ 25, the lender who made this bet possible can push the shorts to cover their bet. This would mean that the seller must effectively buy the shares at the new higher price.

When shorts are fair, bet against a company, they can make a lot of money. But if they get it wrong, they can also lose a lot more money.

There are also other options and tools for betting on the future of a business.

How much money has the GameStop short lost?

The losses seem enormous. Shorts appeared to have lost $ 3.3 billion in bets against GameStop this year on Monday, according to MarketsInsider. About $ 1.6 billion, or about half, of those losses occurred on Friday when the stock jumped 51%.

It’s also worth noting that GameStop started the year as one of the most courted companies out there.

It seems like a lot of money

That may be the case, but what is perhaps an even greater indication of the scale of these moves is that sales of GameStop shares were halted during Monday trading because they were moving too fast.

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These wild swings won’t go on forever, will they?

Part of what drives this behavior is the popularity of retail investing, or when non-Wall Street traders buy and sell stocks. Stock trading apps, often free of charge, made it easy for people to get started in the market. And social media has helped people come together, pushing each other to buy more and more stocks.

“The GameStop rally is part of a series of eye-catching market moves that are causing concern among fund managers, some of whom say trading by individual investors is pushing stock prices out of control with fundamentals,” he said. writes the Wall Street Journal on Monday.

How is Wall Street reacting?

Big name trading apps like Robin Hood, ETrade and others would have struggled to stay in line amid all the hysteria. TD Ameritrade acted on Wednesday to restrict the sudden spikes in demand, “out of prudence in unprecedented market conditions”.

The Nasdaq has said it will stop trading a stock if it finds a link to unusual activity on social media. The company said it sees its role as a “self-regulatory body” to ensure that its markets act in “legitimate” ways. “Regulators need to sort of catch up with the technology that is now available,” Nasdaq CEO Adena Friedman told CNBC on Wednesday.

What do businesses think of all of this?

GameStop did not respond to a request for comment. BlackBerry executives told MarketWatch they were “unaware” of the reason for recent business activity. BlackBerry reached a deal with Facebook earlier this month over a patent battle, although the terms were not disclosed.

Why are Redditors doing this?

There is the financial aspect which seems easy, which is compelling in itself if you are so comfortable with the risk. But some of them also see this as a crusade against Wall Street. “We are at war,” a Redditor said on Wednesday. “A war for the redistribution of wealth.”

Why did Elon Musk get involved?

Aside from being a prolific Twitter user, Musk has also recently learned that he can lead people to actions at various companies. He tweeted how much he loved buying something for his dog on Etsy, and the stock surged. Now he’s tweeted about GameStop, and that action has jumped up again.

Should I try to get into the frenzy?

It is always a good idea to consult a financial professional before making any investment decisions.

Correction Jan. 25 at 5:52 p.m. PT: Corrected the explanation of short selling to clarify how the process works and to say that there are different ways to bet against the rise in a company’s stock price.