What happened with GameStop, explained


Hunter Morrison, Staff Writer

In January, shares of stock in GameStop saw a dramatic increase in value. From Jan 13 to Jan 27, the value of a single share of GameStop’s stock increased by 1500 percent, arguably one of the largest increases in stock market history. How did this happen?

According to data from the New York Stock Exchange, shares from GME, better known as GameStop, have seen a significant decrease in value over the last several years. Amid the first COVID-19 lockdown in March 2020, GameStop stock dropped to a value of $2 to $4 per share, the lowest in the company’s history. Much of this was due to GameStop stores being closed.

The low value of GameStop’s stock gave birth to an idea to manipulate the stock market. Amateur traders in a sub-forum of Reddit known as r/wallstreetbets conspired to purchase as much GME stock as possible and not sell it. This, in turn, would reduce the number of available GameStop shares to the point that short-selling investors would have difficulty finding stock to buy or cover. 

To elaborate, when an investor short sells a stock, they eventually have to buy it back. For example, if an investor sells a share of stock for $300 and the value of that stock increases to $400, the investor will have to fork over an extra $100 of their own money to buy back that share of stock. By not selling one’s stock, the demand for a particular share of that stock increases, ultimately driving up its price. 

This is exactly what happened in the case of GameStop. As a result of the amateur traders not selling their shares of stock, short-selling investors began losing money, and the value of shares significantly increased. This created what is known as a short squeeze. Although rare, this is not the first time a short squeeze has occurred. 

On Oct 28, 2008, Volkswagen temporarily became the world’s most valuable company as a result of a short squeeze. In a single day, the company’s stock value shot up by 93 percent, one of the largest increases in financial history. Although the value of Volkswagen’s stock has since leveled out, short squeezes can be an amateur trader’s dream. 

For many subscribers of r/wallstreetbets, getting rich was not the purpose of driving up GameStop’s stock value. In fact, its purpose was to bring hedge funds, or investors that use high-risk methods to obtain as much capital as possible, to their knees. This form of digital protest is unlike anything ever seen in the stock exchange. 

Since then, GameStop’s stock value has significantly decreased, but many amateur traders are still holding onto their stock in protest. As of closing on Feb 16, GameStop’s stock was valued at $49.50 a share, a decrease of $433.50 from its highest value on Jan. 27. This digital protest has caused many investors and traders to lose their money. 

It’s difficult to tell what’s next for GameStop, but likely the value of its stock will continue to decrease. Over the last decade, sales at GameStop locations have slowed in response to the growth of online gaming, but even so, it is unlikely that GameStop will go bankrupt any time soon. All in all, this fluke in the stock market has baffled and amazed many and will likely go down as one of the most unusual moves against Wall Street in financial history. 

For more information about GameStop’s stock value, go to www.nyse.com/quote/XNYS:GME or www.nasdaq.com/market-activity/stocks/gme