Shares of a U.S.-based games company, Gamestop, have reportedly spiked to more than 300 per cent over the past week, supposedly an outcome of a conflict between professional and private investors. While the retailer, which sells video games from brick-and-mortar stores, is arguably a kind of relic in a world that is moving towards digitalization, it still saw an escalation of another 120 per cent in the Wednesday trading in New York.
While there is a surging curiosity as to what is it that is driving up the price of Gamestop, a professional investor has described the company as a ‘failing mall-based retailer’. According to the investor, Gamestop had made a loss of $795 million in 2019, with probably several hundred more in 2020.
However, this has not deterred an army of social media day traders who have a lot of time on their hands through the lockdown. These traders have been ramping up prices and have also been swapping tips through Reddit’s chat thread wallstreetbets.
According to sources, with nearly 30 per cent of the shares anticipated to be in the hands of hedge fund borrowers, Gamestop stands as the most shorted stock on the Wall Street. The retail investors at Reddit have also embarked on a frenzy of option trades and share buying, putting a ‘short sequence’ on the pros and pushing up the price.
While big Wall Street investors have rushed back into the market for the purpose of limiting their losses via this superchanged trading environment, the demand is still pushing the price further. In this context, Melvin Capital Management, a hedge fund, had to be bailed out with over $2 billion for covering losses on some shares, comprising Gamestop. Additionally, Citron Research, another short-seller, has also withdrawn from the fray.
As numerous stocks subject to unusual fluctuations in the Wednesday trading, the phenomenon is speculated to be spreading to Europe, cite sources knowledgeable of the matter.
Source credit: https://www.bbc.co.uk/news/business-55817918