On Reddit and chat forums, day traders were shouting it from the rooftops: Buy GameStop!
Lots of people did, sending the shares of the once-moribund mall retailer to new highs in what has become a gladiator match between redditors and Wall Street shorts. GameStop Corp. was up 145% to $159.18 Monday morning, before sinking below Friday’s close only to bounce back up again to $73.50, up 13%.
The move, which extended GameStop’s gains for the year to about 300%, is the latest sign that frenetic trading by individual investors is leading to outsize stock-market swings.
The volatility prompted the New York Stock Exchange to briefly halt trading nine times. That followed a hectic premarket session in which GameStop’s stock price soared and more than 10 million shares traded hands, far above the average.
The rally has been fueled by investors encouraging each other on social media to pile into GameStop shares and options.
The buying pressure has led money managers to switch out of substantial bets that the stock would fall, investors and analysts said.
This resulted in a short squeeze, in which rising prices prompt investors to buy back shares they had sold short to cut their losses, pushing the stock higher still.
GameStop didn’t respond to a request for comment on Monday’s move.
The company has become a high-profile battleground between bullish chatroom-driven day traders, especially on online platform Reddit, and hedge fund short-sellers, who have been betting against the stock.
GameStop has been the most-actively traded stock by customers of Fidelity Investments in recent sessions, with buy orders outnumbering sell orders by more than four-to-one, according to the brokerage.
“We broke it. We broke GME at open,” one Reddit user wrote Monday after the NYSE halted trading, referring to GameStop’s stock-market ticker.
Some Reddit users egged others on when GameStop shares subsequently went into reverse, using an emoji to describe the stock as a rocket to the moon. “Hold the line! No room for doubters,” wrote one. Another bemoaned losses: “I’m still new to this and bought to double my holdings at $137. Please tell me I’m OK.”
The tussle over the company, with a modest market value of about $5 billion at Friday’s close and four years of declining sales, exemplifies the increased sway of retail investors. Many poured into the market during the coronavirus lockdown, congregating on online platforms to swap trading ideas and to boast about winning bets.
GameStop’s rally is one in a series of eye-catching market moves to stir concerns among fund managers, some of whom say trading by individual investors is pushing stock prices out of whack with fundamentals.
In another instance, a tweet by Tesla Inc. Chief Executive Elon Musk about the messaging app Signal sparked a rally in the share price of unrelated biotechnology company Signal Advance Inc.
“This is the new day and age in which no one listens to the analysts: ‘Why bother, let’s just go out and buy it ourselves?’”
— Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management.
“This is the new day and age in which no one listens to the analysts: ‘Why bother, let’s just go out and buy it ourselves?’” said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. “It is a sign of high complacency,” Mr. Andersen added, saying that the lack of concern about valuations reminded him of the run-up to the dot-com crash in 2000.
Still, Mr. Andersen says he doesn’t think the moves in companies such as GameStop portends trouble for the broader market, saying the “herd mentality” is confined to relatively small stocks.
Adding to the frenzy, options contracts tied to GameStop shares have been changing hands at a record pace, a sign investors are trying to position for further gains. When the stock leapt 51% Friday, options activity tied to the company jumped to the highest level ever.
The purchase of bullish call options can feed into gains for underlying stocks, because dealers that sell the contracts may seek to hedge against rising prices by buying the shares. Options for GameStop shares next expire Friday.
GameStop began the year as one of the most-shorted companies listed on the New York Stock Exchange and Nasdaq, according to Dow Jones data. As of Friday, short interest in the company’s shares outstanding stood at 102%, according to IHS Markit data tracked by S&P Global Market Intelligence.