On Monday morning, a bunch of Reddit users decided to play the market and push up stock for video game retailer GameStop — to nearly three times its average over the past several months. Then they started spreading their strategy to struggling movie chain AMC and once-popular smartphone maker BlackBerry, too. And it worked. So well, in fact, that the investing has even and . What’s going on?
Despite the move GameStop is now one of the biggest bets Wall Street traders have made lately, with . It all started last week, when posters on the Reddit stock trading chat community WallStreetBets attempted to push up shares in the struggling game retailer. With much of Wall Street betting against GameStop’s success, WallStreetBets investors believed they could force a market rally by where there had been little before.
The result: GameStop stock jumped more than 822%, from $17.25 at the beginning of the year to a high of $159.18 on Monday. Then it dropped by nearly half, only to rise back up to $147.98 on Tuesday. And then Tesla CEO Elon Musk tweeted about it (using ), and the price jumped 40% in after-hours trading. On Wednesday morning, it hit new highs, hovering around $315 per share.
The Reddit community has also turned its eyes on BlackBerry, attempting to pull the same trick. So far, they’ve pushed shares up more than double from $6.58, where they started at the beginning of the year. On Tuesday, the stock closed at $18.92. On Wednesday, it’s hovering around $22.
There’s also AMC. Reddit targeted that one, spawning the hashtag #SaveAMC on Twitter too. Its stock jumped from $2 per share last week to around $14 Wednesday morning.
Here’s what to understand about GameStop, AMC and BlackBerry.
How’d this happen?
Effectively, the WallStreetBets crowd created artificial demand for GameStop and BlackBerry shares with their own money. There are 2.2 million members of the WallStreetBets community, though it’s nearly impossible to determine how many people are involved in the GameStop and BlackBerry schemes.
What happens is that by buying a lot of GameStop shares quickly, the price rises. That’s normal. With GameStop, though, there are also a lot of short sellers, or people who effectively bet the stock will drop rather than rise.
But there’s a hitch. If GameStop’s price rises too much too quickly, short sellers — the people betting on GameStop’s struggles — are forced to buy even more stock to cover their losses. That pushes the stock up even more.
That’s how we suddenly see GameStop’s value jump.
What’s a short seller?
When people buy a stock normally, they’re betting it’ll rise or share enough profits that they’ll make more money than they put in.
Short sellers, or “shorts,” do the opposite. Shorts trade with borrowed money and sell the shares, with hopes they can make money if the stock falls in the future.
Imagine Ian Corp. is a public company, and its shares are worth $10. A “short” would borrow shares of Ian Corp. and sell them for $10. Their bet is that Ian Corp. stock will actually drop below that — maybe to $4. If it does, then, they can buy the shares at $4 and pocket the other $6.
If Ian Corp. stock jumps to $25, then the lender who made this bet possible may push the short to cover their bet. That would mean the short effectively has to buy the shares at the new, higher price.
When a short is right, betting against a company, they can make a lot of money. But if they’re wrong, they can lose a lot more money too.
There are other options and tools to bet against a company’s future as well.
How much money did the GameStop shorts lose?
The losses appear to be tremendous. As of Monday, shorts seemed to have lost $3.3 billion betting against GameStop this year, according to MarketsInsider. About $1.6 billion, or about half, of those losses happened on Friday when the stock jumped 51%.
It’s also worth noting that GameStop began the year as one of the most shorted companies on the market.
That seems like a lot of money
It is, but what’s perhaps an even bigger indication of how dramatic these moves were, GameStop share sales were halted during Monday’s trading because they were moving too fast.
These wild swings won’t continue forever, will they?
Part of what’s driven this behavior is the popularity of retail investing, or when traders who aren’t Wall Street professionals buy and sell stocks. Stock trading apps, often with no fees, have made it easy for people to jump into the market. And social media has helped people to rally together, egging one another on to buy more and more of a stock.
“GameStop’s rally is one in a series of eye-catching market moves to stir concerns among fund managers, some of whom say trading by individual investors is pushing stock prices out of whack with fundamentals,” the Wall Street Journal wrote Monday.
How’s Wall Street responding?
Big name trading apps like, ETrade and others have reportedly struggled to remain online amid all the hysteria. TD Ameritrade on Wednesday acted to restrict the , “out of an abundance of caution amid unprecedented market conditions.”
Nasdaq said it will halt trading on a stock if it finds a link to unusual activity on social media. The company said it sees its role as a “self-regulatory organization” is to make sure its markets act in a “legitimate” way. “Regulators kind of have to catch up with the technology that’s now available,” Nasdaq CEO Adena Friedman told CNBC on Wednesday.
What do the companies think of all this?
GameStop didn’t respond to a request for comment. BlackBerry executives told MarketWatch it was “not aware” of any reason for the recent trading activity. BlackBerry did reach a settlement with Facebook earlier this month over a patent fight, though the terms were not disclosed.
Why are the Redditors doing this?
There’s the seeming easy money aspect, which is compelling in and of itself if you’re that comfortable with risk. But some of them are also framing this as a crusade against Wall Street. “We’re in a war,” one Redditor posted Wednesday. “A war for the redistribution of wealth.”
Why did Elon Musk get involved?
Aside from being a prolific Twitter user, Musk has also recently learned he can drive people to various companies’ stocks. He tweeted about how much he enjoyed buying something for his dog off Etsy, and the stock jumped. Now he’s tweeted about GameStop, and that stock jumped even further.
Should I try to get in on the frenzy?
It’s always smart to consult a financial professional before making investing decisions.
Correction Jan. 25 at 5:52 p.m. PT: Fixed the explanation of short selling to make clear how the process works and that there are different ways to bet against a company’s stock price rising.