The ‘game’ at GameStop has grabbed the attention of all the big and small investors, regulators, and governments. In this thrust of financial strength, novice investors forced heavy hedge funds to kneel. Know what was the game of this entire episode:
A retail video game company ‘GameStop’ is listed on the US stock market, which has been under pressure for the past several quarters due to this prevailing pandemic. Several large hedge funds led by Melvin Capital were created to record short positions in the company. They were confident that the company’s shares would break and that is why they made short positions.
Many retail investors came to know about it very soon. These investors, active on the social media platform Reddit, started taking positions, unlike hedge funds. After this, the company’s shares jumped a record. Its price in January reached $ 347 from $ 3.
The shares of the company have given a return of 500 percent since last Monday. During this time, the stock crossed the $ 70 to $ 300 level. This boom in the stock price caused the hedge funds to sweat. They were, forced to cut their short, due to which they suffered a tremendous loss.
Why did hedge funds expect to sell?
In September 2020, active investor Ryan Cohen bought a 13 percent stake in the company. Cohen is also the founder of the online pet food portal ‘Chewy’. Until this time, GameStop was a physical video game company. After this, Cohen began pressuring GameStop to shift to the online model.
Due to this, many investors thought of taking advantage of this opportunity. They redeemed it to make money fast. From September 2020 to January 13, the company’s shares jumped 500 percent to $ 30.
However, GameStop’s business was still cold. In such a situation, hedge funds felt that there would be a fall in the shares of this company, and they prepared to take quick short positions. Once GameStop was at the top of the list of companies that had the highest short positions of traders.
Why GameStop shares rose?
On Reddit, there is a business group called ‘Wall street Bets’, whose number of users are in millions. Most of these investors are novices. Most of these traders invested in it, only after billionaire investor and social capital CEO Chamat Palihapitiya announced his investment in Game Store’s options.
After this, Tesla CEO Elon Musk also tweeted this share, which reached the group. After this, the flock of investors bought shares of GameStop all over. This boom forced the shorting investors to cut their deals. Due to this, the retail business made huge profits.
Why is this matter so big?
There are very few such instances in history when a group of retail traders washed off hedge funds. This was seen as a battle between Wall Street and Main Street. This is the first time that online businessmen have got themselves proved.
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