An online forum called Reddit is sending the old guard of Wall Street into a tailspin: to date, they've managed to boost an ailing video game shop stock by 1700 per cent.
At least one Reddit user posted that he'd paid off thousands of dollars in student loans with his GameStop gains. Sales growth is sluggish because gamers no longer need to go to the mall to buy games or consoles. That said, some investors have argued that GameStop was seriously undervalued, especially when video games have become staples of the stay-at-home pandemic era.The GameStop stock surge began for a legitimate reason: The company announced on January 11 it had added three new directors to its board, including Chewy co-founder Ryan Cohen.
The reason is two-fold, both of which are far removed from anything related to the company's fundamental strength: Investors following the Reddit group bought a ton of GameStop options, and short-sellers had to buy shares to cover their losing bids. You could pay an analyst to tell you what stocks to buy, or you could create a Reddit account and follow forums like WallStreetBets.
In the case of GameStop and other stocks targeted by WSB, traders keep buying options, forcing the investors selling those options to hedge their bets by buying up GameStop stock.Short-sellers are investors who bet that a stock is going to fall. They borrow shares to sell on the market with the promise to buy back those shares at a later date. If they win the bet, they sold high and bought low, and they walk away with money in the bank.
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