If you’ve been paying attention to the news over the last week you probably noticed an increase in coverage surrounding GameStop. GameStop is a brick and mortar business focused on selling video games. Recently, GameStop stock has soared and caused quite the commotion for traders.
Why is GameStop up?
GameStop was languishing below $5 a share as recently as September, but it began to rally after Ryan Cohen, the entrepreneur founder of Chewy.com, took a stake, saying the struggling mall retailer was ripe for a turnaround. On Jan. 11, GameStop said it would add three new directors to its board.
That’s when the stock got supercharged. Individual investors — particularly on the Reddit chat forum “WallStreetBets” — began buying GameStop shares and encouraging others to do so. That caught the eye of Andrew Left of Citron Research, a short-selling guru who recommended in a Jan. 21 report that Wall Streeters bet against the stock. By Friday, GameStop had a short interest of 102 percent of its outstanding shares, making it one of the most shorted stocks on the market.
Why are the gains so huge?
In addition to the above-mentioned short interest that makes these stocks prone to spike on good news, individual investors in recent weeks have been using options that are further enhancing the effect. Particularly popular on WallStreetBets are “call” options, which enable investors to buy stocks at a predetermined price in the future.
These options force so-called market makers — usually big financial firms — to buy more shares themselves in order to hedge their own exposure. A vicious cycle of buying can result.
Keep reading at The New York Post for more on this developing story.