Why GameStop’s stock surge is riling Wall Street

Small investors take their shot at big-time traders, hedge funds

NEW YORK — It’s not just you. What’s going on with GameStop’s stock doesn’t make sense to a lot of people.

The struggling video game retailer’s stock has been making stupefying moves this month, wild enough to raise concerns from professional investors on Wall Street to regulators, the White House and Congress in Washington.

The frenzy hit new heights Thursday when several trading platforms limited their customers from making certain trades with GameStop.

It’s all forcing hard questions about the stock market and whether a new generation of traders should be allowed to take full advantage of all the tools and free trades available on their phones, regardless of how reckless they may seem to outsiders. At the same time, champions of the 99% are cheering louder, saying the moves mean that hedge funds, Wall Street and the 1% are finally getting their comeuppance.

Here’s a look at how we got here:

WHAT IS HAPPENING WITH GAMESTOP’S STOCK? It’s been maniacal this month. After sitting around $18 three Fridays ago, it doubled in four days. It kept shooting higher, before nearly doubling on Tuesday and then more than doubling again on Wednesday to $347.51. On Thursday, it gave back a chunk of those gains and finished the day at $193.60, down 44%. But it’s still up an amazing 928% through the first few weeks of 2021.

AND THE COMPANY ITSELF? It’s still struggling. GameStop, based in Grapevine, Texas, sells video games at more than 5,000 stores, and the pandemic has been keeping customers away. More worrisome is the long-term shift by customers toward buying games online.

Enthusiasm has grown for GameStop’s prospects since the company announced that a co-founder of Chewy, the online seller of pet supplies, was joining its board. Investors see that helping GameStop’s digital transformation. But analysts still expect GameStop to keep losing money next fiscal year.

REDDIT IS INVOVLED, RIGHT? Yes, particularly those in a group called “WallStreetBets.” Their discussions are full of ideas for the next big trade to jump on, self-deprecation and an appreciation of both winning and losing bets, as long as they’re bold. They’ve recently been encouraging each other to keep buying GameStop and push it “to the moon.”

THAT ALONE PUSHED THE STOCK UP MORE THAN 1,000%? No. A big reason for that is how deeply hated GameStop’s stock was by hedge funds and professional investors on Wall Street. Many bet on GameStop’s stock to fall by “shorting” it.

WHAT’S A SHORT? It’s how investors can make money off a stock falling. In a short sale, they borrow a share of GameStop and then sell it. Later, if the stock price does as they expect, they can buy the stock at a lower price and keep the difference. GameStop is one of the most heavily shorted stocks on Wall Street.

WHAT’S A SHORT SQUEEZE? When a stock is very heavily shorted, a rise in its price can force short sellers to get out of their bets. To do that, they have to buy the stock, which pushes the stock even higher and can create a feedback loop. As GameStop’s short sellers have gotten squeezed this month, smaller and first-time investors have been egging each other on to keep the momentum going.

DO THESE SMALLER INVESTORS BELIEVE IN GAMESTOP’S BUSINESS? Some, but lately it’s been more about inflicting pain on short sellers, hedge funds and other big financial firms. Many talk about it in terms of evening the score with the financial elite, who benefited from years of gains as other people fell further behind.

Buying GameStop “isn’t about greed,” one user wrote on Reddit, after citing all the recessions “they” caused and the times “they” got bailed out with taxpayers’ dollars. “It’s about taking back what’s ours, what we’ve already paid for.”

“This is for making us work on Thanksgiving night all the way through black friday at 9.50 an hour,” another user wrote on Reddit .

IS IT JUST GAMESTOP SWEPT UP IN THIS? No. Other heavily shorted stocks have been seeing a surge of interest recently as investors look for the next GameStop. American Airlines, BlackBerry and other formerly downtrodden stocks have had extreme price swings this week.