Over the last two days, GameStop stock has undergone a radical transformation and gone up with such frightening speed that Wall Street had to stop trades of the stock multiple times. On Friday, it went up almost 70% of its earlier value, reaching a high of $72.88 USD per share before closing out the day at $65.01 USD, still an overall increase of 51%.
Analysts are attributing this sudden rise in stock price to what is known as a “short squeeze.” This particular scenario occurs to a stock which investors or speculators have taken short positions against where there is suddenly high demand for the stock and a lack of supply. For some time now, short positions against GameStop stock have taken their toll, driving the price down. However, certain developments have changed the circumstances around the retailer.
The most recent of these happened last week when former Chewy CEO Ryan Cohen joined the GameStop board along with two other people, having taken a 10% stake in the company last year and rebuffing offers for a single seat on the board going to Cohen. Cohen had urged the board in a letter sent in mid-November that they needed to pivot from “a brick-and-mortar mindset to a technology-driven vision.” Having gained three seats on the board, the stock price went up to the point where short positions needed to be covered.
Beyond this, it appears that investors organizing on social media such as r/wallstreetbets on Reddit have banded together to buy up more stock, causing short positions to erode even further. Citron Research, a noted short seller and vocal critic of GameStop, seems to have been the target of a great deal of ire. A dismissive Tweet on Tuesday which called investors buying GameStop stock “suckers at this poker game” and predicted the stock price would drop to $20 was supposed to preface a livestream which was ultimately delayed to Thursday. Citron put out a statement on Friday stating they would no longer be commenting on GameStop owing to alleged hacking attempts on the company’s Twitter account, alleged signups on Tinder, and unwanted food deliveries to managing partner Andrew Left. “We are investors who put safety and family first and when we believe this has been compromised, it is our duty to walk away from a stock,” Left wrote.