It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The content provided on Moneywise is information to help users become financially literate. Information and timely news from our team of trusted money specialists. This crazy saga might not be over just yet. Which means that those expecting a sudden and spectacular fall for GameStop may be disappointed. In fact, those who watch the market closely will tell you that stocks involved in short squeezes generally take a few months to fall back after these surges.
While price did eventually fall back, it took a few months to do so. In late October, the stock price doubled. In fact, Bed, Bath & Beyond (BBBY)and Nokia (NOK) have recently received some similar attention from Redditors.īut back in 2008, Volkswagen also became a favorite of short sellers until it saw a massive rise in price over a short period of time. So even though most didn’t have the the resources of a hedge fund, these Redditors were able to leverage their collective buying power through Robinhood, giving the big and better-capitalized institutional players a run for their money. Or whatever your Reddit community is rallying around at the moment. The app allows you to buy and trade stocks, options, exchange-traded funds (EFTs) and even cryptocurrencies. With Robinhood, you can invest any amount of money to build a balanced portfolio in real time. They used an investing app, Robinhood, which offers commission-free investing. The manager of one hedge fund, Melvin Capital, told CNBC on Wednesday that its short bet on GameStop has been canceled out entirely, thanks to the squeeze. Think of it like suddenly finding yourself in quicksand: The more you struggle, the deeper you sink.Īnd some big players really are sinking. Buying up all the call options put the squeeze on short sellers to buy more to cover themselves, and that just intensified the pressure. The squeeze refers to the role they took in it. The short was already happening to the GameStop stock before the Reddit folks stepped in. Supply falls short of demand and the scramble to get a hold of stock only drives the price up more. Those who’d taken the negative position then have to buy back the stock at a higher price to prevent further losses. Invest Now Short squeeze definitionĪ short squeeze happens when a stock sees a rapid increase in price even though investors had previously bet on its decline. Now a platform called Vinovest helps everyday buyers invest in fine wines - no sommelier certification required. This is what people mean when they talk about the “short squeeze.”įine wine is a sweet comfort in any situation - and now it can make your investment portfolio a little more comfortable, too. By gobbling up piles of GME shares and “call” options - which gave them the right (but not the obligation) to buy the stock at a predetermined price - they propelled the hapless GameStop stock upward, surprising everyone in the process, especially the short sellers.
#REDDIT SHORT SQUEEZE FULL#
The Reddit short squeezeĮnter the Reddit community r/wallstreetbets, a raucous online investing forum full of ironic trading talk and elaborate memes of the type only Reddit could produce.Īlong with posters on some other investing forums, the wallstreetbets folks, for reasons known only to themselves, started an impromptu crusade against the GameStop short sellers. Basically, shorting a $10 stock that eventually drops to $5 nets the short seller $5 per share, less borrowing costs.īy the middle of this month, GameStop was the most shorted stock in the world. GameStop’s grim prospects made it a target of short sellers - that is, investors who borrow stocks they predict are about to drop so that they can sell the shares and then rebuy them later at a lower price. The brick-and-mortar retailer once held a significant chunk of the video game market, but due to the pandemic and competition from internet retailers, it’s been on the decline in recent years. Last year, things were looking grim for GameStop (GME), both on the stock market and with its physical business.
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