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The GameStop (GME) Situation Explained

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Avatar for MobTwo
Written by   304
8 months ago

If you had been hearing about GME and GameStop and Wall Street but has no idea what’s going on, here’s a summary. GME is the stock ticker for the company GameStop Corp. GameStop Corp is a brick and mortar company selling computer games. And as you may know, people are buying games online nowadays instead of going into physical retail shops. And that means businesses like GameStop is suffering and declining.

Where there is money to be made, people will put their money onto it. And that’s what happened. Hedge funds such as Melvin Capital and Citadel had been shorting GME stocks betting that the share price will go down due to this GameStop’s dying business. These hedge funds had made lots of money shorting company stocks and hoping they go bust. By the way, it is important to remember that Citadel is also the owner of Robinhood, the stock trading app. This relationship is important as you may see what is going to happen later.

The way shorting works is by borrowing the company shares, sell it immediately at a high price, then when the price of the stock goes down, you buy back the stock and pay back to the lender. This means you can borrow 100 stocks at $10 each, sell it, and when the stock price drops to $2, you can buy back 100 stocks at $2 each and return to the lender. As a result, you just made $800 shorting the stock.

Some retail investor noticed that these hedge funds are heavily shorting the GME stocks. These hedge funds borrowed more stocks than there are available to do this, betting heavily that the GME share price will tank. And if the share price goes down, these hedge funds stand to make millions of dollars easily. This is called naked short selling and is supposedly illegal (but I guess rules and regulations only apply to poor people, not hedge funds).

What happened next is that a group of people in the subreddit WallStreetBets came together to buy all the GME stocks they can, pumping the price of the GME stocks so that these hedge funds shorting the GME stocks will lose money. In other words, it’s ordinary people like you and me betting against the Wall Street guys. Before you know it, the price of GME went from $20 to $347 within 3 weeks. These hedge funds are losing billions of dollars and on the verge of bankruptcy due to them shorting the GME stocks so heavily. On the other hand, the retail investors pumping the price of GME are making lots of money, some became instant multi-millionaires.

However, the story doesn’t end there. What happens next is infuriating. The hedge fund guys went on CNBC show and lied that they had covered their short positions (trying to manipulate the GME price down which should be illegal by the way). We know they lied because there are data about the GME stocks suggesting that these hedge funds had not yet covered their positions. They are trying to manipulate the price down so that they won’t lose billions of dollars when they try to. Source: https://www.reddit.com/r/stocks/comments/l64xvw/gme_dedicated_thread_breaking_cnbc_engages_in/

That’s not the end of the story. US politicians like Janet Yellen, who were paid by these hedge funds, went on TV to say that they will investigate and take actions about the GME situation. It’s amazing what money can buy. You can buy politicians and the president, no problem. Source: https://twitter.com/IsicaLynn/status/1354894529208348673

Adding to that, trading apps such as Robinhood are force selling the retail traders GME stocks at bottom prices, in order to force the stock price of GME to go down to protect Citadel (the hedge fund that shorted GME stocks and also owned Robinhood the trading app). Imagine someone forcing you to sell your home at unreasonably low prices because they want to drive down the prices of the housing markets so that these hedge funds make big money (remember the 2008 housing market crisis where the rich got richer and the poor got poorer?). The stock GME was also removed from trading so that retail investors are not able to buy that stock anymore, but dumping the stock so that the GME price goes down is ok. At the same time, hedge funds can still trade the GME stocks, but not you! This is obviously illegal but the rules only apply to poor people I guess, not the wealthy hedge funds.

And that’s not all. Companies such as Discord or Reddit are banning or taking down WallStreetBets channels to reduce their chances of fighting back. This is horrible. It seems like when the hedge funds make money, it’s life as usual but when the retail investors make money, you are not allowed to.

And so today the price of GME had dropped by more than 50% within a day, thanks to all these manipulation by the politicians, CNBC, trading apps, all done to protect the wealthy from being harmed. Insider trading seems to be alright when done by the elite, like for example Nancy Pelosi (US politician) with insider information bought Tesla shares just days before the president announced that they will replace the entire federal fleet with electric vehicles, which as we all know, Tesla is manufacturing these electric vehicles.

The lesson here is really simple. The rules of the game is dictated by the wealthy and well connected. This is a fact, no longer a hypothesis. Bitcoin Cash (not the hijacked BTC) is my ticket out of this rigged game.

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Avatar for MobTwo
Written by   304
8 months ago
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Comments

By the way, it is important to remember that Citadel is also the owner of Robinhood, the stock trading app.

huh! didn't know that. puts a whole new perspective on this situation 🧐

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8 months ago

This was a very informative article, and thanks to it, I now understand what’s going on! Thanks for writing it. PS: I think your shorting example contains a mistake, and the profit should be $800.

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8 months ago

Thank you, fixed!

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8 months ago