Wednesday, May 12, 2021

GameStop investors explain why they went big on squeezing GME shares

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GameStop’s stock is acting strangely, still. It went even higher after last week’s surge that pushed GameStop’s value to all-time highs. And while the week is still young, it shows that this unexpected rise is, rather than the result of everything the company has done, a poor investment, at least in the short term. GameStop’s irregular stock market has pushed the Reddit group to appear to be leading the wave in the spotlight. Popularly described as “4chan with a Bloomberg Terminal,” r / WallStreetBets is a wild west of stock investment “tips” and memes. And the pearl establishment certainly portrayed this group as an army of rogue trolls playing with established Wall Street practices.

IGN reached out to several r / WallStreetBets day traders to find out more about this group that has propelled the struggling video game retailer into the limelight.

What’s up with GameStop Stock?

GameStop action (traded as $ GME) is on the rise. Prices for a single piece of stock today peaked at around $ 145. Compare that to a year ago, when the largest brick and mortar video game retailer hovered around $ 15 in prices but went as low as $ 3 a share.

GameStop in the news timeline

Some Wall Street investors bet that GameStop would continue to struggle and started short selling the company, a strategy in which an investor borrows shares of that particular company – in this case GameStop – and sells them in the hope. that stock prices hold. to drop. If that happens, they can buy back the shares at an even lower price and keep the difference as a profit, but instead of going down, the prices go up, which is bad for short sellers who have to buy back the shares that ‘they borrowed. The editors of r / WallStreetBets saw the shorts early and stepped in to buy GameStop shares early and at a low price, creating short pressure.

Short sellers rushing to buy while minimizing losses created a rush to buy GameStop shares, which pushed prices up. A vicious cycle, if you will.

Who squeezes Wall Street?

Speaking with traders on r / WallStreetBets, it is obvious that these traders are not Wall Street wolves, but hobbyists who trade on the side and have a clear or irreverent view of the stock market.

Three r / WallStreetBets IGN traders have spoken out that they are not full time traders, while a fourth said they are still relatively new to trading. And all three have also joined the community fairly recently, with the oldest member following the subreddit about a year ago.

“I had seen the subreddit in a YouTube video after I entered trading, but I was only doing my own thing until this GME stuff really started popping up and I bought,” a trader, who has asked to go through Ike for privacy reasons, IGN says.Source: Google.

Source: Google.

Ike bought shares of GME at around $ 30 and says he spent around $ 600 on his position. He says his option is now worth around five times that value, but is still waiting before selling it.

When asked why they got into GME, Ike said it took “a little bit of persuasion” and due diligence, but it was “mostly FOMO [or, Fear of Missing Out]. “

Another trader named Tj says they are investing “on the side for fun” while working as a full-time engineer at a large tech company. Their option is worth six figures after entering at a purchase price of around $ 18 per share.In keeping with their 4chan with a Bloomberg Terminal mantra, these traders prefer to memorize their way through Wall Street, using terms like FOMO or YOLO. [You Only Live Once] to explain their investment decisions.

An investor named Sage said he has only been following r / WallStreetBets for “about two months” and that investing is a “side business”. For “about five minutes,” Sage’s GME options were worth $ 33,000, based on an initial investment of $ 1,000. Although they chose not to sell.

The biggest achievement is someone who goes through u / DeepFu * kingValue on WallStreetBets who regularly updates the subreddit on the price of their option which is currently valued at $ 13 million.

The energy that the subreddit brings to trading can only be described as chaotic. A thread by user u / dumbledoreRothIRA is titled, “I DON’T SELL THIS UNTIL $ 1000 + GME” with an additional swearword and a few rocket emojis for good measure.

The subreddit also claims a “victory” against hedge fund Melvin Capital Management, a short seller that The Wall Street Journal reports gets an outside investment to help stabilize the fund after a series of short bets. One of them was Melvin’s bet against GameStop.

GameStop, a meme?

One of the reasons that GameStop’s inventory situation is so absurd is that for the past three years, GameStop has struggled as a business. A physical video game retailer, GameStop has not been able to compete with digital retailers like Amazon, as well as the growing tendency for customers to primarily purchase digital versions of games through portals like Steam, PSN, or Xbox Live.

When IGN spoke with GameStop’s director of customer service, Frank Hamlin, in 2019, he explained, “As a specialty retailer, we’re hip to this category of video games. We are competing with a group of general retailers that don’t have the same seasonality as us because they sell paper napkins and loaves of bread and they can use video games as a leader to sell. a loaf of bread.

Increased competition has forced GameStop will close around 400 and 450 stores in 2020, and the COVID-19 pandemic has hasn’t helped physical retailers like GameStop at all.

But GameStop is a mainstay of the game’s public consciousness, and brand recognition has pushed WallStreetBets to embrace the struggling brand. While investors on Wall Street proper saw a struggling retailer, WallStreetBets saw an underdog and a childhood part of the game.

GameStop – Experimental Stores

Sage says that while “Reddit Hype” factored in their decision to take on GME, “Childhood Memories” did too. Meanwhile, Tj tells IGN that their non-retirement investment comes with extra income. “So I thought I might as well throw it in the last meme and let it roll,” they said.

Branyan, another trader who spoke with IGN, said knowing GameStop helped them take their own position.

“I did my fair share of shopping there,” Branyan says. “It really made a difference that I knew the company was blindly opposed. I trusted them for my business, so I should be able to trust them for my jobs. “

Ike says they were very aware of GameStop both from their childhood and the latest news. “Like most of my age [GameStop] I was a place I often went for games as a kid, and I knew its decline by watching the closing of a [of the stores] near me.”

However, Ike cites the addition of co-founder of animal retail giant Chewy, Ryan Cohen, to GameStop’s board of directors and the company’s attempts to remodel some of its stores into experiential event spaces as signs of positive change.

What happens next?

One of the side effects of the GameStop stock squeeze is the increased control over r / WallStreetBets. Mainstream and finance-focused posts have been covering the subreddit in recent days – and not in a way the community finds useful.

“The media coverage has been unfair and misleading, often referring to the BMS as a single entity that makes decisions for millions of people,” Ike says. “But just take a look at the sub and you’ll see how wrong it is, [it’s] full of people taking all sides [on an investment] and people post random messages half the time. “

Tj says they’re worried the media coverage could hurt inexperienced investors “who get into stocks without doing any research.” They believe “a lot of people will lose more than they can afford” because of notoriety.“Well to tell you the truth [the media coverage] is very worrying, ”adds Branyan. “Many subreddits have been shut down in the past and wiped out due to negative media coverage. The coverage we are getting now seems to suggest that we are trying to manipulate the market as a single collective body. This is not the case. We are just a group of investors who like to discuss what we do. “

“People make huge YOLOs and succeed sometimes and people like to see that. This is what you will find at the base of WSB. People either succeed or lose while trying. We are not trying to manipulate the market, we are trying to go big or die trying. Each of us. “

As for their GME options, investors say they will eventually sell and hopefully turn a profit.

“I will sell when u / deepfu * kingvalue sells,” Sage says.

Matt TM Kim is a reporter for IGN.

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