The video game retailer’s resurgence comes one month after its frenzied rise shocked the financial world and was cheered on by online investors.
The Washington Post reports:
GameStop shares closed up 19 percent Thursday, after surging as much as 88 percent, as retail investors returned to the shorted stock that set off a trading frenzy last month that shocked Wall Street and sparked federal scrutiny.
GameStop ended the session at $109.15, pushing the video game retailer’s market cap past $7.6 billion, even as the broader market slumped. The Dow Jones industrial average fell 559.85 points, nearly 1.8 percent, to 31,402.01. The S&P 500 shed 96.09 points, or nearly 2.5 percent, to close at 3,829.34, while the tech-heavy Nasdaq tumbled 478.53 points, or 3.5 percent, to end at 13,119.43.
Other shorted stocks that have attracted intense interest, propelled by online investor communities such as the subreddit WallStreetBets, also had big swings. Koss Corp. jumped 17 percent, to $21.53 per share, after soaring as much as 48 percent. AMC Entertainment soared 5 percent before reversing course; it closed at $8.29, down 8.8 percent.
A host of factors could be driving GameStop’s rise — which has been building since Tuesday and includes a more than 100 percent jump on Wednesday — said Ed Moya, a senior market analyst at OANDA. This week, GameStop announced that its chief financial officer, Jim Bell, would resign March 26 after roughly 18 months in the role. Diana Jajeh, the company’s senior vice president and chief accounting officer, will serve as interim CFO.
But Moya doubts the leadership change was enough to buoy GameStop, noting that the company is still being dragged down by its brick-and-mortar store model. He pointed to Friday’s expiration date for GameStop’s options trading, a riskier asset class made more accessible to retail investors through brokerage firms such as Robinhood.
Stock options operate as contracts that give holders the right either to buy or sell part of the asset before the expiration date, which often lands at the end of the month and contributes to more trading volatility. The higher the stock value, the better the result for investors with these types of holdings.
“Obviously, this is the Reddit army. They’re back at it again,” Moya said. “After we saw the GameStop hearings and Roaring Kitty, he really announced that he was doubling his stake. … There’s this belief that people really want to see this stock succeed.” (Roaring Kitty is the online username of the financial trader Keith Gill.)
And Wednesday, GameStop board member and Chewy founder Ryan Cohen — who some credit with inspiring online investors to pivot to the video game retailer after announcing last fall that he held a 12.9 percent stake in the company — tweeted a mysterious photo of a McDonald’s ice cream cone with a frog emoji.
Some analysts and online investors presented theories linking the tweet to the rally, but the actual explanation isn’t clear. Representatives for Cohen did not immediately respond to requests for comment. But the photo is the same as the header image for an October 2020 Business Insider article about a young engineer who created a website to determine whether the local McDonald’s has an ice cream machine that works. Moya said he sees symbolism connected to GameStop trading, “as ludicrous” as it seems.
“It’s kind of a sign to the GameStop traders to show that, ‘Alright, we’re up and running. The ice cream machine is working,’” Moya said. “If you have a good meme, you can probably bank 20 percent alone on that.”
The story of the GameStop trading frenzy is one that can’t be told without explaining the online culture of the meme-circulating, crass-language-using community of r/WallStreetBets. The buildup to the first “meme-stock” rally in late January was marked by a cycle of investors on social media discussing interesting stocks, others jumping in and more investors expanding the discussion on social media.
Omose Ogala, 25, a software engineer in Oakland, Calif., usually avoids options trading, but he decided to give it a try with last month’s GameStop rally after reading on Twitter about its success.
He bought in to GameStop and BlackBerry through his Robinhood account, which he has had for three years because of its variety of ways to invest — but he said he bought in too late with GameStop through the riskier trading approach and lost money.
“I set aside that money I wanted to throw in the pot and then I said, ‘Okay, let’s go for it,’” he said, adding that he thought at the time, “If I lose it, cool. I’ll take that loss. But if I win, cool. I’ll take that win.”
Twitter, YouTube, Reddit and Discord communities are primary sources of financial information for a growing number of retail investors, particularly Millennials and Gen Z. Moya said the latest rally again illustrates a shift away from traditional investing, which uses sources like newspapers and cable shows, toward more grass-roots social media speculation and risky trading that sometimes errs on the side of gambling.
“A lot of people are going to, once again, learn the hard way,” Moya said.
