To cut a long story short, Reddit is trying to bankrupt hedge fund managers for the lols.
Basically, a bunch of investors bet on GameStop stock crashing – which it probably would have done, considering how the chain has been suffering during the pandemic and, in the longer term, due to increased digital game sales. They did something called a “short call option”, which is, to put it way more simply than it actually is, agreeing to sell your shares at a fixed price within a given time frame.
It’s a gamble, but usually an informed one – if you agree to sell your shares at, say, $100 each, but you expect the value of those shares to go down, you’ll likely turn a nice profit. If the shares go above $100, you’re losing out on the potential profit you could have made. Essentially, you want the stocks to drop, if you want to make money. (If you want a more in-depth explanation, but don’t want to read a really long financial article, check out this series of TikToks.)
Following so far? Well, it turns out that the members of a specific investing subreddit called r/wallstreetbets saw this as an opportunity to mess with the investors that were taking the short call option. GameStop was the most shorted stock on Wall Street, at around 30% of the shares being used for this get-rich-quick scheme, so it made the perfect target.
Reddit evidently didn’t like seeing a bunch of rich people making more money than they needed, and so they decided to take things into their own hands, vigilante-style. They started buying up these cheap shares, rapidly inflating the value well beyond what those hedge fund managers were hoping for. Some of these Redditors have been paying thousands of dollars to get in on something that’s part meme, part money-making scheme, and part stick-it-to-the-big-guy.
The best part is that a lot of this trading took place on an app called Robinhood, where trades are free (unlike a lot of similar services). It’s literally robbing the rich to feed the poor.
At the beginning of 2021, GameStop shares were worth about $20 each. Now, they’re worth around $300 each, although that price is fluctuating wildly.
It’s worth noting that Reddit’s strategy is a dangerous one that could mean massive profits of up to 3,000 times what you bought in for, but the share price won’t stay artificially inflated forever. Some people will make millions of dollars. Other people might lose everything they have if they don’t sell at the right time.
Phew. If you have any extra insights to add – this story is truly stranger than fiction, and we missed out tidbits like Elon Musk tweeting “Gamestonk!!” and the new President of the US, Joe Biden, apparently “monitoring the situation” – then feel free to discuss in the comments. We’re going to take a long nap.