In the 1630s, it was tulips. In the 1990s, it was Netscape and Pets.com. Later, as we all know, it was housing. Today, the warning sign flashing “danger,” signaling that the stock market has lost its mind, is GameStop.
GameStop is a video game retailer that has been priced at about $3 to $10 a share for much of the year. But in the past few days, individual investors have driven the share price above $300.
Many of these buyers are using Robinhood, an app that lets anyone trade stocks without a commission. Because of the pandemic, people have plenty of time on their hands, and are looking to make cash, and it’s fueled a spectacular rise in individual day trading.
Why are they buying GameStop? Well, some of the commentators on “WallStreetBets,” the Reddit message board driving the frenzy, believe it’s a good company.
But mostly they’re out to hurt the big guys.
Hedge funds love shorting stocks, a trading technique where you make money when stock prices go down. Companies often go belly up amid short selling “bear raids.” That’s why small investors hate hedge funds so much.
When word spread among Robinhood traders that GameStop was heavily shorted by the big guys, the tables were turned into a bull raid. They drove up the price, and all those bets that GameStop would decline in value failed. A “short squeeze” was on at a level sophisticated market players hadn’t seen in years.
Read more at NY Post.