While the price of video game retailer GameStop has slumped this week, many of the small investors who have rushed the stock are still holding, and some are buying more.
The company’s efforts to reinvent its struggling business model remain laden with uncertainty, but investors have flocked to it in hopes that hedge funds that borrowed and “shorted” large quantities of the stock will be forced to buy the stock back, thus sending its price sky-high.
The GameStop (ticker: GME) price indeed skyrocketed from less than $5 per share in August to $30 in mid-January and then nearly $500 per share at one point last week, before dropping below $90 during trading on Feb. 3.
Though some corporate media have claimed that the investors, largely organized through the Reddit forum “r/wallstreetbets,” have now moved on from the Gamestop stock, chatter on the forum indicates otherwise. Many members of the 8.4-million-strong community have posted their stock positions, showing heavy losses, but added that they are “still holding.” Some have posted screenshots of their recent buys of more of the stock.
The price climbed again during the day, to close at 92.41 on Feb. 3.
It appears those who still have faith in their strategy regarding the stock have shifted their mentality though.
“The GME gang is losing its way because its [sic] all hype now,” one user commented. “Hype will kill this because hype dies. We need to clarify our role and execute with patience.”
Another posted, “Just as our ancestors used persistence hunting to catch their prey we will use persistence buying and holding to hunt for our [profits].”
The strategy is based on anticipation of a “short squeeze.” Some large Wall Street players focus on “short selling,” where they borrow stocks (usually for a small interest fee) and sell them, expecting the price will go down, and they can buy the stock later, return it, and pocket the difference. If the price goes up instead, the traders may eventually rush to close their short positions by buying and returning the stock. If the short volume is very high and the traders close en masse, the extreme demand for the stock can send its price up exponentially.
Yet, as some of the Reddit users pointed out, their current strategy isn’t to trigger the squeeze, but simply to collectively hold more and more of the stock, waiting for the short sellers to finally give up on their positions and buy, sending the price up.
Some of the forum members have speculated that the squeeze would have started last week if not for trading platforms such as Robinhood blocking GME purchases. They accused Robinhood of colluding with the hedge funds to help them minimize losses.
Robinhood denied the allegation, saying it halted the purchases because its clearinghouse, which validates stock purchases of its customers, started imposing exponentially higher deposit requirements for some stock, seemingly referring to GME and several others that were also popular on the Reddit forum.
Some lawmakers have called on the Securities and Exchange Commission to investigate either the GameStop investors or the Wall Street players involved or both for potential illegal market manipulation.
