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Meme Stocks, Crypto and Other Bad Choices – TSMP #71
Intro: Meme Stocks and GameStop Insanity
Wikipedia: Game Stop Short Squeeze
Ahhh GameStop. A happy place for gamers.Prior to January 2021, GameStop as a company had been struggling due to competition from online game distribution centers, as well as problems with COVID-19 reducing the number of people who shopped in-person. As a result, GameStop's stock price continued to decline and many institutional investors were short selling the stock. In April of 2020 GameStop stock had dropped to $2.80/shareWhat is SHORT SELLING a stock?First, what is GOING LONG on a stock? Pretty straightforward. You buy a stock, hold it until it hits the level you want, then you sell it on the market and make a profit (hopefully)Okay, what is SHORT SELLING a stock? A little more complicated. You borrow stock from a broker that you don’t own and sell it on the market. Then when the price drops you buy the stock back at a lower price (called covering) and pocket the difference.Why do you SHORT SELL a stock? Basically because you think the company is having trouble and you believe it’s going to go down in value.What is a SHORT SQUEEZE? A short squeeze happens when something happens that influences public opinion positively (ie. Good earnings, news of a new and exciting product, Elon Musk says he’s going to buy your company, etc) and the stock jumps up in price. On January 22, 2021, approximately 140 percent of GameStop's public stock had been sold short, meaning some shorted shares had been re-lent and shorted again.Think about that one. Before the craziness happened more than 100% of GameStop stock had been sold short. This is a company NOBODY believed in
Enter r/wallstreetbets
The subreddit r/wallstreetbets is an online community on Reddit Are you on Reddit yet? No? Seriously? Go now. We’ll wait. The Wallstreetbets community is known for discussion around meme stocks and high-risk stock transactions.At the beginning of January GameStop was trading at $17.25 per share. Many members of Wallstreetbets believed GameStop was significantly undervalued, and they came up with a plan: If the majority of Wallstreetbets traders all invested at the same time - and could convince everyone else they knew to do the same - they could trigger a short squeeze, driving up the price to the point where short sellers would panic and have to cover (buy back) their stocks at large losses.It worked. Spectacularly. On January 8 GameStop was worth $17/share. On January 15 it was up 100% to $35/share. A week later it was up almost another 100% to $65/share. Then it doubled. And doubled again. Everyone was now talking about GameStop. It was the number one news item on every financial media outlet. r/wallstreetbets broke the single-day Reddit record for most views (73 million) and added over 1.5 million new users in less than 24 hours. By Jan 28 the pre-market value of GameStop was over $500/share - Up over 3000% from the beginning of the monthFYI: If you bought GME at $2.80/share in April of 2020, you could have made 17,000% on your money. Ie. If you bought ten shares at $2.80 (a $28 investment) you would have made $4,760.GameStop lost a lot of money for big financial institutions but the individual retail traders who bought in at the ground floor of GameStop made a small fortune.
What Goes Up…
However, 3000% gains just aren’t rational. No stock can keep going up forever. It only took a few days for the frenzy to die down and a week later on February 5 GameStop had lost 90% of its value - dropping from $500 all the way back to $53/share. This drop caused a lot of people to lose money….hopefully you weren’t one of them (like my buddy was.)
Hope Springs Eternal
Even if they lost money on the GameStop drop, a 3000% percent gain on your money is too good for people to pass up and soon Wallstreetbets was at it again. This time they found their next meme stock in the movie company AMC.On May 7th 2021, AMC was worth $9.51/share
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By Wearesuperiormen.comIntro: Meme Stocks and GameStop Insanity
Wikipedia: Game Stop Short Squeeze
Ahhh GameStop. A happy place for gamers.Prior to January 2021, GameStop as a company had been struggling due to competition from online game distribution centers, as well as problems with COVID-19 reducing the number of people who shopped in-person. As a result, GameStop's stock price continued to decline and many institutional investors were short selling the stock. In April of 2020 GameStop stock had dropped to $2.80/shareWhat is SHORT SELLING a stock?First, what is GOING LONG on a stock? Pretty straightforward. You buy a stock, hold it until it hits the level you want, then you sell it on the market and make a profit (hopefully)Okay, what is SHORT SELLING a stock? A little more complicated. You borrow stock from a broker that you don’t own and sell it on the market. Then when the price drops you buy the stock back at a lower price (called covering) and pocket the difference.Why do you SHORT SELL a stock? Basically because you think the company is having trouble and you believe it’s going to go down in value.What is a SHORT SQUEEZE? A short squeeze happens when something happens that influences public opinion positively (ie. Good earnings, news of a new and exciting product, Elon Musk says he’s going to buy your company, etc) and the stock jumps up in price. On January 22, 2021, approximately 140 percent of GameStop's public stock had been sold short, meaning some shorted shares had been re-lent and shorted again.Think about that one. Before the craziness happened more than 100% of GameStop stock had been sold short. This is a company NOBODY believed in
Enter r/wallstreetbets
The subreddit r/wallstreetbets is an online community on Reddit Are you on Reddit yet? No? Seriously? Go now. We’ll wait. The Wallstreetbets community is known for discussion around meme stocks and high-risk stock transactions.At the beginning of January GameStop was trading at $17.25 per share. Many members of Wallstreetbets believed GameStop was significantly undervalued, and they came up with a plan: If the majority of Wallstreetbets traders all invested at the same time - and could convince everyone else they knew to do the same - they could trigger a short squeeze, driving up the price to the point where short sellers would panic and have to cover (buy back) their stocks at large losses.It worked. Spectacularly. On January 8 GameStop was worth $17/share. On January 15 it was up 100% to $35/share. A week later it was up almost another 100% to $65/share. Then it doubled. And doubled again. Everyone was now talking about GameStop. It was the number one news item on every financial media outlet. r/wallstreetbets broke the single-day Reddit record for most views (73 million) and added over 1.5 million new users in less than 24 hours. By Jan 28 the pre-market value of GameStop was over $500/share - Up over 3000% from the beginning of the monthFYI: If you bought GME at $2.80/share in April of 2020, you could have made 17,000% on your money. Ie. If you bought ten shares at $2.80 (a $28 investment) you would have made $4,760.GameStop lost a lot of money for big financial institutions but the individual retail traders who bought in at the ground floor of GameStop made a small fortune.
What Goes Up…
However, 3000% gains just aren’t rational. No stock can keep going up forever. It only took a few days for the frenzy to die down and a week later on February 5 GameStop had lost 90% of its value - dropping from $500 all the way back to $53/share. This drop caused a lot of people to lose money….hopefully you weren’t one of them (like my buddy was.)
Hope Springs Eternal
Even if they lost money on the GameStop drop, a 3000% percent gain on your money is too good for people to pass up and soon Wallstreetbets was at it again. This time they found their next meme stock in the movie company AMC.On May 7th 2021, AMC was worth $9.51/share