GameStop (GME) stock hit another high this morning of $483 as retail investors leveraging Reddit online community discussion board #WallStreetBets and online trading platform Robinhood takes it to Wall Street hedge funds. Here is a quick recap on how they did it.
Find a stock with a large percentage of stock float shorted.
Buy call options on the said stock.
Begin buying common stock to drive the price up.
The short interest in these stocks is largely made up of institutional investors and hedge funds. The strategy listed above is also a hedge fund favor for removing capital from retail investors as well. This time the tables were turned.
As the retail investors coordinated to drive the price of GameStop up, it was the hedge funds, to the tune of billions of dollars that were caught in the short squeeze.
Short Squeeze - As the price goes up the short sellers are forced to add capital to maintain margin requirements or they must cover the short position by purchasing the stock in the market. Of course, more buying means the stock price higher.
Video game retailer GameStop (NYSE: GME) 52 – week price performance is 8,019.39% at last check. Retail investors are making huge gains on the back of Wall Street hedge funds who are losing billions. Did short-covering yesterday bring the entire market down? Is there a power shift from Wall Street to Main Street?
It’s going to be an interesting ride. YOLO (You only live once)
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