GameStop hyper-rally explained: Elon Musk’s tweet boosts GameStop rally


LAST UPDATED: Jan. 28, 2021, 2:24 p.m.

New Delhi (Anish Yande): Shares of GameStop have increased by over 130 percent due to a hyper rally triggered by the members of a stock trading forum. The rally of the gaming company shares has led to a clash between traders on Wall Street and the members of the trading community on Reddit.

Shares of GameStop rises:

In US markets, the pending decisions regarding US stimulus and the Monetary Committee led to uncertainty amongst investors. Even as Dow Jones fell by more than 2 percent on Thursday’s trading session, the shares of GameStop continued to incline.

On January 12, when the stock rally began, the shares of GameStop were at $20 per share. Despite an overall volatile market, the GameStop rally led to an increase in share prices to $347.51. The market capitalization of GameStop rose to $25 billion. Within ten trading sessions, the share prices have jumped by more than 15 times.

Reddit forum leads to Short Squeeze:

A forum on Reddit, r/WallStreetBets has triggered the rise in GameStop’s shares. Day traders on the subreddit planned to target specific short sellers. The short sellers had bet against stocks that were most likely to decline further. The traders from the subreddit attempted to impose losses for the short sellers by buying large amounts of  GameStop shares.

The short squeeze forces short-sellers to become buyers of the stock, after a surge in stock prices. 

As a result, the shares of GameStop rose by 18 percent on Monday, due to the buying spree. The shares rose by more than 245 percent within two consecutive trading sessions on Tuesday and Wednesday. 

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Melvin Capital, which had bet against GameStop, became a target of the traders. The investment firm eventually sold out its GameStop shares.  

The founder of Tesla, Elon Musk, tweeted on January 27th, about the rise in GameStop stock prices. The billionaire posted a link to r/wallstreetbets 

and commented ‘Gamestonk!’ The tweet was a reference to a viral meme and led to a further rally in the share prices of GameStop.

Image Credit: Google

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