Friday, May 14, 2021

GameStop and BlackBerry stocks skyrocket amid amateur trader fervor

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Shares of GameStop and BlackBerry surged early in trading in New York on Monday, as online amateur traders continued to attack professional investors betting the stocks were overvalued.

Game retailer GameStop has climbed more than 85% during the store’s open hour, building on a Friday rally that exceeded 100% at its peak.

Shares of mobile phone maker BlackBerry climbed nearly 40%, pushing the price to more than double its level since the start of the year.

Both companies are popular with hobbyist traders who share ideas and advice on the r / wallstreetbets bulletin board on the Reddit website. Other companies such as Palantir have also been popular boards.

Friday’s GameStop stock drama came after short seller Citron Research said the company’s value should be halved from $ 40 because it was “pretty much on the decline.” Retail enthusiasts fought back by buying options in GME, helping to push the stock above $ 65.

Small investors can influence stock prices by purchasing large amounts of call options, which gives the user the right, but not the obligation, to buy a stock later at a fixed price.

Typically this means that wholesale brokers such as banks have to buy shares in the open market to hedge their own risk, in the event that the share price moves towards the option strike price. . Especially in smaller stocks, this hedging can have a disproportionate impact on prices.

Day traders’ activity has been fueled in part by the switch from brokers to commission-free trading and by a strong rebound in stock market valuations since the strong sell-off last March.

“As someone who started trading stocks in the late 90s in college, I will always remember watching when small retail groups were crushed by hedge funds and short sellers. savvy, ”said Edward Moya, senior market analyst at Oanda, a foreign exchange. specialist, in New York.

“What happened with the GameStop action is a reminder of how times are changing. A new army of traders isn’t focused on valuations, but rather on the momentum opportunities they see in Reddit’s Wall Street Bets, YouTubers, TikTok, or Robinhood. “

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