September 22, 2021

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What’s Happening With GameStop and Stock Market Explained

5 min read
What’s Happening With GameStop and Stock Market Explained

GameStop has rallied more than 680% in January alone as an army of retail investors marshaled against short sellers in online chat rooms, encouraging each other to pile on and keep pushing the stock higher, CNBC reports.

So what exactly is going on and what is everyone talking about? Below you will find everything there is to know, the story, the scheme, all the terminology currently being thrown around and who’s involved. (In that order) feel free to scroll to the part you need.

And if that’s all too much, scroll to the end where there is a quick and simple breakdown.

What’s going on with GameStop?

GameStop and a whole array of other publicly traded companies including Nokia, BlackBerry and Bed Bath & Beyond are currently seeing massive stock price fluctuations due to a group of Reddit users buying up large quantities of the companies’ stocks. They did this to drive up the market price after shares were initially short sold by hedge funds.

This all kicked-off when subreddit r/wallstreetbets rallied its more than 4 million members to go and buy up cheap GameStop shares in order to raise the price at an exponential rate.

This put multi-billion dollar finance outfit Melvin Capital right in the fire since they had borrowed and sold those same exact GameStop shares for much less and would soon have to buy them back and return them to the broker.

This means under current stock market regulation, Melvin would have to pay the massively inflated price of those GameStop shares in order to get them back from those amateur investors.

The Scheme

Melvin Boat Shoes Corp, in a scheme known as a “short squeeze,” had originally borrowed GameStop shares and sold them in the hopes that they would drop below the price they had paid for them before buying them back and returning the shares to the broker, pocketing the difference and turning a profit in the process.

But when the Redditors started buying up gamestop stock, causing the share price to skyrocket, Melvin & Broke Sons suddenly faced a colossal loss of billions.

This has sent the elites of wall street completely bananas. Billionaire’s like Leon Cooperman.

There's no crying in politicsLos Angeles Post-Examiner

The Terminology being Thrown Around

In case you’re having trouble understanding or keeping up with what’s going on and the massive amount of jargon being thrown around on social media threads and in the media, check out the definitions below to understand what’s happening with GameStop and the stock market.

“Short-sell”

In a short sell, an investor borrows a stock option and sells it at its current price, under the assumption that the price will fall at a later time.

After the price falls, the trader repurchases the stock at its lower price and returns it to the broker they borrowed it from, pocketing the difference in price as a profit.

A user on Twitter made this diagram to that briefly explains it:

Image

“Borrowing a stock”

Stock traders have the option of contacting their brokers to borrow a stock that they think will decrease in price for a fee or interest.

“Hold the line”

The phrase “hold the line” isn’t really specific to the stock market, but in this case, the statement, which you can see everywhere on Twitter, is urging regular traders who’ve purchased shares of short sold stocks like GameStop, AMC, Nokia or Bed Bath and Beyond to keep their position and not sell off any shares.

“Market manipulation”

Market manipulation is any behavior that influences market activity for the personal gain of an individual party.

This includes driving the price of stock options up or down or otherwise trading stocks in a misleading way to gain profit.

“Freeze”

A stock market freeze or frozen market means that all trading has stopped on the market or an account due to an external factor. These can include situations like a technical malfunction or misconduct on the part of an individual.

In the case of GameStop, trading apps like Robinhood and TD Ameritrade have restricted trading of certain securities to closing, or canceling an existing position.

“Speculation”

Speculative trading relates to a transaction that a trader engages in that carries a fair risk of loss, with the possible gain outweighing this potential loss, thereby making the transaction attractive to an investor.

“Hedge fund”

Hedge funds are an investment method that seeks to maximize returns using alternative strategies.

Hedge funds can invest in a more diverse portfolio that includes stocks, bonds, mutual funds and venture capital funds and their strategies include long short equity (taking longer positions in stocks that could increase and shorter selling stocks that will decrease), market neutral strategies that take equal long and short positions in the market, or strategies based on events like mergers or announcements.

Hedge funds are intended for investors that earn over a certain amount due to the high minimum investment and investment holdings in hedge funds tend to not be as liquid as others.

Who is involved In All Of This?

GameStop — (Abbreviation: GME) GameStop is a chain of stores in the video game industry. GameStop sells new and used video games and video game consoles along with accessories and collectible items.

Bed Bath & Beyond — (Abbreviation: BBBY) Bed Bath & Beyond is a home goods store that sells furniture, bedding, kitchen supplies and other miscellaneous appliances and items. Bed Bath & Beyond recently announced that it would close more than 200 physical store locations over the next two years.

Nokia — (Abbreviation: NOK) The sturdy cellphone maker remains a player in the telecom industry while also moving into other industries including cloud computing and launching new phone models.

AMC Entertainment Holdings — (Abbreviation: AMC) The company, which owns a large quantity of movie theaters internationally took a large hit when the coronavirus pandemic forced the closure of in-person gathering spots. The company recently denied reports that it would be filing for bankruptcy and is instead looking at other ways to offload debt and raise funds.

BlackBerry — (Abbreviation: BB) BlackBerry recently announced a partnership with Baidu to create tools for connected and autonomous vehicles in China.

American Airlines — (Abbreviations: AA) The airline took a severe hit after the coronavirus pandemic ground travel to a halt and has faced continued criticism and scrutiny because of its treatment of patrons who’ve worn Black Lives Matter masks on flights.

And if that was still all too confusing don’t fret. Here is a much simpler break down of what’s going on with the stock market right now:

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