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Saturday, July 24, 2021

Reddit vs. Hedge Funds: Gamestop shares soar

Actually things are not going well for Gamestop, the share price has been falling for years. But now it literally explodes. A Reddit community is probably responsible.

Apparently driven by a community on Reddit, the stock of the computer game retailer Gamestop has only known one direction for weeks; a billion-dollar hedge fund is now in dire straits. Melvin Capital had bet to a particularly large extent on further falling prices of the troubled trader and was last caught off guard by the sharp rise in the price. A billion-dollar investment should stabilize the investor last but it’s unclear if that’s enough. After Elon Musk had recently tweeted about the events on Reddit, the price could rise even further and drive Melvin into ruin.

Reddit vs. shortsellers

The argument began in the Reddit community r / wallstreetbets , as CNN explains. There, users have been advertising the shares of the troubled company for weeks , on the one hand because they consider it to be undervalued, but most recently because investors have largely bet on falling prices. With this “short selling”, investors win money if prices fall as hoped. But if the shares go in the opposite direction, they have a problem. The stronger the rise, the greater the losses and therefore there can be a run on the stock because traders want to limit their losses. At Gamestop, more than 100 percent of the available shares were recently shorted, explains Bloomberg.

Mevlin Capital is now in trouble because the share price of Gamestop Corporation (GME) has risen from around $ 18 by mid-January to $ 147 most recently. It’s already more than $ 200 in after-hours trading. Observers assume that Melvin has already sold other bets on falling prices on a large scale to make money, reports Reuters . Accordingly, there is apparently a connection with the recent price increases at the German biotechnology company Evotec, the battery manufacturer Varta and the video game developer CD Projekt (Cyberpunk 2077). Melvin also bet on a loss for their shares and now had to sell.

After Gamestop AMC?

Compared to the Tagesschau , the market analyst Konstantin Oldenburger compares the price explosion of Gamestop with the short squeeze that briefly made Volkswagen the most valuable company in the world in 2008. In the current case, not only private investors organized on Reddit have participated in the trading of Gamestop shares, but also well-known investors who already had the right nose during the US financial crisis.

On Reddit itself, users have already chosen the next destinations. Lists are shared there according to which AMC, among other things, is undervalued. The media company operates several television stations and many investors have also bet on falling prices.

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