A group of stock-discussing Reddit digital forum users on Monday helped shares of video game retailer GameStop soar as much as 144% challenging veteran Wall Street analysts who argued that a plunge in its value was coming.
Dozens of users of a subreddit called Wall Street Bets have been furiously buying GameStop stock for days, which today traded at nearly $160 per share amid high trading volume and having started the year at just $17.
This retailer with physical stores, which has been hit by the covid-19 pandemic and the rise of online shopping, was known among market pundits for its bearish potential and many had bought put options, a bet that has been “squashed” with the recent rallies.
An initial run-up in the stock on an unexpected increase in buying volume forces those in the short options market to cut losses by buying the stocks they are betting on the downside, further boosting the stock price.
“WSB is single-handedly bringing Wall Street down. Power to the fucking people. I’m so proud of all you illiterate retards,” one of the forum users wrote Monday, linking to a news story explaining that GameStop “short sellers” lost $1.6 billion today.
The firm’s meteoric rise forced the New York Stock Exchange to halt its trading -a tool to cope with volatility- as many as nine times before it plummeted and closed the day at nearly $77 per share.
Small investors like those at Reddit, who generally use “trading” apps to play the stock without commissions, have boosted the prices of other companies going through bad times such as movie theater chain AMC, phone company Blackberry or retailer Bed Bath & Beyond, in many cases challenging analysts’ arguments.
“What has happened to GameStop stock is a reminder of how times are changing. A new army of ‘traders’ focused not on valuations, but on momentum opportunities they see in the Wall Street Bets of Reddit, Youtubers, TikTok or Robinhood (a brokerage app),” said analyst Ed Moya of the firm Oanda.
Another case that reflects the new behavior of investors, especially younger ones, took place a few days ago when Tesla founder Elon Musk recommended on Twitter the messaging app Signal and an unrelated stock called Signal Advance soared as much as 1,100 % in the following two days.