Srs Bsns: Everything You Need To Know About How A Community Of Redditors Caused GameStop Stock To Surge And Made Millions

Anyone who expected 2021 to get off to a calm start after last year’s events is far off from the truth. This year though, instead of WW3, wildfires and other catastrophic events, the first month of the year has been dwarfed recently by the news surrounding GameStop. So how did this once doomed-to-fail company go from irrelevant to the hottest topic for weeks? It all starts with GameStop’s stock surge and the subreddit /r/WallStreetBets.

To set the stage for this momentous event, you first need to know what /r/WallStreetBets (WSB) is all about. In a nutshell, this subreddit (a community of Redditors subscribed to a specific board on the platform) is comprised of millions of members whose primary focus is risky stock market trading and, of course, making lots of memes about it.

The sub, which describes itself “as 4chan with a Bloomberg terminal,” has boomed in a relatively short period of time, with 1.1 million members in April last year, 2 million on Saturday and now over 3.3 million today. Though they’ve made headlines in the past for some of their exploits, nothing has ever come close to what’s now happening with GameStop, so let’s dig into why they’re making headlines now.

Though widespread attention to this has only been occurring in the last couple of weeks, our tale begins in September 2019 when WSB user DeepFuckingValue initially started posting each month about their GameStop (GME) stocks to the sub back when it was valued at less than a dollar. In October 2020, GameStop stock then surged for the first time from $9.36 to $13.49. Redditor nasilat made a post that same day and advised buying shares on January 15th, 2021, resulting in increased interest from WSB users. Also that day, DeepFuckingValue (who also runs the YouTube channel Roaring Kitty) posted his potential earnings from his GameStop calls, which valued at over $2.2 million from his initial $50,000 investment.

Throughout November and December heading into the new year, the October surge resulted in a considerable amount of hype surrounding GameStop stocks on the subreddit and posts predicting a short squeeze that led to the birth of the GME Gang (WSB users who bought GameStop stock). The short squeeze (what happens when short-sellers don't hit their price target and have to come out of pocket to cover the shorts or buy the shares) stemmed from users betting that hedge fund Melvin Capital (a major holder of GME short positions) would send the stock skyrocketing when forced to buy shares.

Then, earlier this month, the first short squeeze was kicked off after a combination of events including Chewy founder Ryan Cohen joining the GameStop board of directors and the potential of new gaming consoles driving revenue to the company resulted in renewed interest.

Also known as a “gamma squeeze” (when a large number of call options are purchased with sellers of these buying the underlying stock in order to hedge their positions, causing the price of a stock to rise), this event saw GameStop’s stock double from just under $20 to nearly $40 in three days as WSB users began heavily buying in. Vice was among one of the first to begin reporting on this phenomenon last Tuesday, but the story is far from over.

On Friday, the second short squeeze began following another increase in hype and purchases from WSB users and other market players who took notice of the bizarre event. GameStop stock then surged from $43 to $76.35 by the end of the day, but continued to rise into this week at $158 on Monday, $243.10 yesterday and peaking at $360.40 this morning. The rapid rise between yesterday and today has also been partially attributed to Elon Musk’s tweet at around 5 p.m. EST, which linked to the WSB sub and referenced the Stonks meme.

With much of the world now paying attention to the story as mainstream media covered it en masse while hedge funds reported losses in the billions, CNBC reported that Melvin Capital closed it for a huge loss among others like Citron Capital. The news caused GameStop’s stock to drop to around $200, but also sparked a wave of posts from Reddit alleging that CNBC’s report was false and an attempt to manipulate the market.

According to CNBC, short-sellers accumulated losses of over $5 billion due to the surging stock price, with Andrew Left from Citron Research calling out the “angry mob” of Redditors for their “attacks” and said GME will rapidly drop back to $20 soon. Other investors like Michael Burry have come out and said the GME trading is “unnatural, insane, and dangerous,” making calls for legal and regulatory repercussions.

Though nothing has been done yet in the wake of these events, some Redditors and other social media users have reported issues with certain apps or traders that they felt were attempting to stifle their actions and restrict their ability to buy or sell stocks.

Just a couple of hours ago, one post on the front page of the sub pointed to an article that said the SEC is planning to probe the WSB subreddit and the events that have occurred for the potential of any fraudulent intent behind it. Whatever happens in the aftermath of all this, it’s certainly made WallStreetBets a well-known name and taken it from underdog to powerhouse — much like GameStop’s stock.

The subreddit has been mulling over other ventures to pursue in the market, with AMC, Nokia and others currently seeing sudden interest, so it seems as though the story hasn’t quite reached the end just yet in one of this year’s wildest phenomena.