Those purchases drive the price even higher (like with any commodity or service, more buyers than sellers = higher prices). When that happens, the short-sellers have to buy a lot of shares to cover their bets. If the stock price goes up, they have to buy it at the higher price to replace the share, and the short seller loses money.Ĭompanies with a lot of short interests occasionally surprise on the upside, and their share price increases. If the stock price declines, the short seller buys it on the open market and deposits it back into the investor’s account from whom the share was originally borrowed, pocketing the difference.

When an investor “shorts” a stock, they borrow the stock from the account of an investor who holds it in the custody of a broker/dealer (think Charles Schwab or E*Trade), and then they sell that stock at the current market price. So, with that being the case, how did the stock go parabolic? The stock had so little positive sentiment that 140% of its total shares outstanding (those issued by the company and traded by the public) had wagers against them, i.e., the bet was that they would decline in value. The smartest minds on Wall Street with the most sophisticated algorithms and analytical models known to man had determined that GameStop was a candidate for bankruptcy. Its stock price has soared 1,600% in just two weeks and made overnight millionaires out of a motley crew of Reddit day traders. Over the past ten days, GameStop has gone from an obscure brick, and mortar retail location headed down the path of bankrupt icons like Blockbuster Video and Sears Roebuck to the darling of Wall Street.

Robinhood, the trading app which markets itself as “democratizing investing,” has vacillated from hero to villain at the same speed as the stock prices it has helped push up. What started as a joke has become a costly game, indeed, with broad regulatory and legislative implications. That’s probably too much emphasis on the word “game,” but you get the picture.

By: Blake Holman, Trust Portfolio Manager

The crew 2 gamestop