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GameStop Stock Price Explained

GameStop’s stock price has soared. Why did the value of an American video game rocket in January? How did the price go from $15 in December to $467 per share in January? Both professionals on Wall Street and amateurs operating out of their bedrooms have made a mint on this stock. The share price went up 700 per cent in a week. Those in the know made millions that week. What exactly happened to make their price spike?

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GameStop

GameStop was a staple of shopping malls across the US until COVID hit. Like all retailers, they’ve had to make significant adjustments to survive. The latest projects show they will be forced to close 1,000 stores in the US by the end of March 2021 in response to loses made in 2019 and 2020. To help their cause, a profit-sharing deal was arranged with Microsoft, and they hired the former Nintendo of America president Reggie Fils-Aimé to help their comeback. But hedge fund managers saw the potential to make a profit on their downfall.

Wallstreet

Wallstreet began to short the company back in December. Shorting a stock is a way of making a profit from a stock trader’s believe will fall in value. They do this by borrowing stocks which they then sell. When the price drops, they buy it back and then return it to the owner. The difference in the price they sold it for and the price they bought it back at is their profit. It’s a legal way for traders to make money, and when traders notice their rivals shorting a stock, they tend to do the same.

Wallstreetbets

This Reddit group made up of 3.5 million users discussing stock and options trading were responsible for the sharp rise in GameStop’s price. Over a few days, the participants in this online community were responsible for $70 billion losses suffered by hedge fund managers. They did this by purchasing stocks. These investors created a surge in the stock price that caught greedy hedge fund managers out. One brokerage restricted Gamestop trades in response to this group’s efforts.

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Robinhood

Users of the Robinhood app, a free-trading app used by millions, found they were suddenly unable to trade Gamestop stocks when the brokerage restricted trades. Several angry users have filed class-action lawsuits against the app, and politicians have called for “more regulation and equality” on the Robinhood app and similar apps due to the controversy.

Melvin Capital

As a result of the failed short, these guys lost 30 per cent year-to-date due to the short position they took on Gamestop. Their owners had to accept a $2.8 billion bailout from billionaires Steve Cohen and Ken Griffin. They’re the guys behind Citadel LLC and Point72 Asset Management. The fund was started in 2014, and over its first seven years, it’s returned an average of 30 per cent each year. It’s not a massive player in the market, but we’re guessing the Reddit users who went up against them felt some satisfaction from their predicament.

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