2021-02-02 by W.M.
How to screw over short-sellers for fun and profit: The mechanics of Gamestonk explained
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Not a Bill Cosby portrait for sale in the entire world, so the short-sellers have to start raising the price: “Hey Camille: Would you sell us your Bill Cosby portrait for $10,000 …. $50,000 … $100,000? Hey Hefner family: Would you dig up Hugh and get his Bill Cosby portrait for us if we paid you for half a million dollars?”
And that’s what happened with GameStop. A bunch of short-sellers borrowed shares of GameStop when they were selling for $18, assuming that when they paid them back the shares would be worth something around $15 and they’d make three bucks.
Instead, a bunch of guys on Reddit bought absolutely every share of GameStop they possibly could, and when the short-sellers tried to buy back shares to repay their debts, the available number of shares for sale was so low that a stock that had once sold for $18 was now $325.
Naturally, once it emerged what Reddit was doing, this led short-sellers to absolutely panic and rush to buy up GameStop shares as fast as possible to cover their own short positions. This rush, in turn, just made everything worse: You had basically no GameStop shares for sale, and you had a bunch of panicked Wall Street investors all tripping over each to buy it before they lost even more money.
You may have heard this term in relation to the GameStop short squeeze: “Stonk.” That’s a term invented by Redditors to make fun of the institutional investors they absolutely screwed over. The implication being: You guys are so easily bested at your own game that you probably can’t even pronounce “stock” correctly.
So there you have it. And we probably haven’t heard the last of the short squeeze. There are an awful lot of shorted companies out there, and with thousands upon thousands of Redditors salivating at their next chance for a GameStop, you’re going to be seeing a lot of failing companies with stock prices suddenly rising into the stratosphere.
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