Stock trading at video game retailer GameStop (GME) was halted briefly on Friday, with an increase of more than 70 percent, partly due to the enthusiastic support of a group of Reddit brokers.
The stock has soared more than 250 percent in the year so far, rising sharply last week after GameStop announced that Chewy CEO Ryan Cohen was joining its board, CNBC reported. Short-seller Citron Research predicted the price would drop, but members of the Reddit r / wallstreetbets board, which had been generating interest in the shares, criticized Citron on the Reddit message board and continued to praise the actions on social media.
The hype generated by r / wallstreetbets helped to create what is known as “short squeeze” in GameStop’s stock. A short squeeze works like this: some investors, known as sold, basically bet that a company’s stock will fall. These investors borrow shares from other investors and sell them – with plans to buy them back when prices drop and return them to the original owner. However, the problem with shorting is that a person’s losses are theoretically infinite; if a stock starts to rise, some short sellers will abandon the position and buy shares at the highest return price. This, in turn, causes the stock to rise, burning any other short positions in the stock, some of which may, in turn, choose to cover their own short positions.
GameStop is the best-selling stock on the market, CNBC said, citing FactSet. Over 138 percent of its shares are short – making it a prime target for a short purchase. The GameStop-related Reddit outbreak triggered a breaker break when increased 69 percent (good) on Friday, around 12:45 pm ET.
Citron said on Friday that it would no longer comment on GameStop’s shares because of the “angry crowd that owns those shares”. Citron Research Editor Andrew Left wrote in a note to readers that the reaction included criminal activities that he planned to report to the Securities and Exchange Commission, which included harassment of young children, as well as financial crimes.
According Bloomberg, the last 10 days were the most volatile period for GameStop stocks in its history. At the close of Friday’s markets, GSE rose more than 50% from Thursday’s close, with a market capitalization of $ 4.5 billion.