What is the GME short squeeze?

How did Reddit cost hedge funds millions?

Source: Reddit r/wallstreetbets

Introduction

The stock market is a great opportunity for both corporations who professionalize and focus their resources on investing, these are often called your Hedge funds, and the is the retail investor, who are people like you and me. Using the spare money we have we use brokers to invest using open tools and websites to aid us with market information. This is the foundation of the two powers (The bullish vs the bearish investor) that are currently at war within the largest stock market in the world. the United States stock exchange.

This ongoing event sparked media attention worldwide with the warlike efforts and tactics used by both hedge funds and retail investors on a select few stocks. However, a lot of speculation and misinformation has caused a lot of confusion and pointing of fingers of who is to blame for this ‘gambling’ behaviour.

How it all began

A user on the website ‘Reddit’ known as u/DeepF***ingValue also known as Keith Gill started making posts on a subreddit known as “r/Wallstreetbets”, showing his current status after going all-in on GameStop ($GME). Earliest posts that can currently be found by the user date back to as far as last year with Keith posting “Hey Burry thanks a lot for jacking up my cost basis” [1] which still get thousands of views today!

Later on, the user posted a video on YouTube on July 28th, 2020, 5 months into the lockdown as a cause of the pandemic, which showed the deep analysis and tools he had used to find out what and why he had invested in GameStop. Within this 58 minute video, he showed how hedge funds known as Melvin Capital being the main culprit and some others had shorted the stock of $GME to over 120% along with some others like AMC over 70% [3] of the available shorted stock. By doing this they are betting and allegedly betting on the bankruptcy of the brick and mortar company.

As months go by more and more Reddit eyes and users start to notice Keith’s posts and join the movement to push the GameStop stock price up. This is such a success that it begins to gain mass media attention from large corporations such as the US CNBC with both TV and article attention with headlines such as “Strategist called GameStop a top buy idea before the short squeeze” [2]. Which turned many eyes who had never invested before to join the movement hoping they could ear a quick buck from the hedge funds.

In fact, the very idea of taking money from the large corporations appealed to so many globally that it had turned the original subreddit forum from 1.2M, users all to way to over 9M in just under a month which helped push the stock to a new high of over 300% over the year, this had turned original wall street betters on the forum to label Keith Gill as the “Godfather of the GME short squeeze”[4] and the Original wolf of Wall Street Jordan Belfort many of us had heard from the books and movies to support the movement! [5]

Should you get involved?

Anyone claiming that you should go all in and that they ‘Know you are going to make money is highly speculative and should be taken with a pinch of salt. Including this post! (I am in no way a financial advisor) It is always best to do your own research and risk assessment as this is not classed as Investing and more along the lines of gambling. So in short, nobody can really say. However we can go over the speculation that is currently feeding this movement for your research.

The active campaigns between the hedge funds and retail investors seem to point the finger at each other that what has been going on the past month is market manipulation with hedge funds using “Ladder attacks” to lower the price artificially and retail investors attempting a “pump and dump” which was the strategy used by Jordan Belfort years ago to make him money and take from hedge funds they had tricked.

Source: Creative Commons

"File:Jordan Belfort - May 30, 2010.jpg" by Ralph Zuranski is licensed under CC BY 2.0

Current events

In current news regarding the unprecedented event within the stock exchange. The SEC are currently running investigations and trials on all major players on the GME and AMC squeeze to see who could be to blame for any speculated law-breaking including Keith Gill who recently testified within the trial [6] and new data showing that “$359 Million of $GME shares failed to deliver” [7]

References

[1]

K. Gill, “r/Wallstreetbets,” 2020. [Online]. Available: https://www.reddit.com/r/wallstreetbets/comments/d1g7x0/hey_burry_thanks_a_lot_for_jacking_up_my_cost/. [Accessed 1 March 2021].

[2]

K. Lahiff, “Strategist called GameStop a top buy idea before the short squeeze. Here’s where he stands now,” CNBC, 2 February 2021. [Online]. Available: https://www.cnbc.com/2021/02/02/strategist-called-gamestop-a-buy-idea-before-the-short-squeeze.html. [Accessed 1 March 2021].

[3]

Market Watch, [Online]. Available: https://www.marketwatch.com/. [Accessed 3 March 2021].

[4]

u/sasibtyr, “Wallstreetbets,” 4 March 2021. [Online]. Available: https://www.reddit.com/r/wallstreetbets/comments/lxivq3/i_combined_all_the_top_gme_memes_into_1_epic_video/. [Accessed 4 March 2021].

[5]

J. Belfort, “We are not F***ing Leaving (GAMESTOP),” YouTube, 1 February 2021. [Online]. Available: https://youtu.be/MQL5-GVt-8I. [Accessed 4 March 2021].

[6]

S. Alpher, “Roaring Kitty's (Keith Gill's) full written GameStop testimony to Congress,” Seeking Alpha, 18 February 2021. [Online]. Available: https://seekingalpha.com/news/3663514-roaring-kittys-keith-gills-prepared-gamestop-testimony-to-congress. [Accessed 4 March 2021].

[7]

B. Kochkodin, “SEC Data Show $359 Million of GameStop Shares Failed to Deliver,” Yahoo Finance, 17 February 2021. [Online]. Available: https://finance.yahoo.com/news/sec-data-show-359-million-144445943.html. [Accessed 4 March 2021].