You may have seen a lot of people on the news and social media talking about the controversy of Gamestop’s actions and how an internet forum managed to outmaneuver Wall Street, but you still may not understand exactly how it all happened and what it means. We are here to help you!
An old suspicion
It all started on the Reddit r / WallStreetBets forum, where a user named DeepFuckingValue noticed that there was something strange about the actions of GME (Gamestop Corp).
He continued to buy GME shares in the following months, and the key to his bet was Gamestop’s own financial reports, which did not indicate that the company was as bad in the legs as the stock values suggested.
In fact, Gamestop had more than enough money to pay its debts, which made it strange that its shares were being sold at a low price of 2 to 4 dollars! The reason for this was hidden in shorts, a specific term in the market.
Handling and shortings
Shorting happens when we take other people’s shares and then pass them on hoping their price will drop. Then you buy back at a lower price, return the borrowed shares and profit from the price difference. When studying GME shorts, it was easy to detect a profit expectation.
After all, large investment funds, like Melvin Capital, were trading these shares and manipulating the market in the hope of making Gamestop go bankrupt, so that they would never have to cover the amounts paid. Michael Burry, one of the industry’s top experts, realized this, got into the DeepFuckingValue game and also invested in GME.
Thus, ordinary people began to realize the potential of the purchase and the shares, which were once worth between 2-4 dollars, rose to 8-12 dollars in October 2020! This made Melvin feel pressured and obliged to give more guarantees for his purchases, since the values started to show an upward trend.