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The GameStop-Reddit Story Explained: by GPT-3

by Saptarshi Nath in January 28th, 2021

This blog has been generated through GPT-3 by using snippets from news articles.

The short sellers were losing.

It's hard to tell.

Some people were allegedly making millions of dollars.

The big question is whether the WSB group had something to do with the big spike in trading. Here's what we do know.

A Bloomberg report earlier in the week said that short sellers are getting squeezed out of the bet against GameStop, which has helped send shares of the retailer sharply higher. Short interest on the company fell to 8.4 million shares, or 13.9 percent of the shares outstanding, as of Feb. 19. That's down from a record high of 20.8 million shares in June.

Short sellers borrow shares and then sell them, hoping to profit from a decline in the stock price. They then buy the shares back later at what they hope is a lower price, return them to the original lender and pocket the difference.

"The narrative has changed on GameStop," said Phil Wong, a Hong Kong-based analyst at research firm Morningstar. "If the market sentiment is positive, short sellers will get squeezed out." Wong says that short sellers are most likely to give up when the stock they borrowed becomes difficult to borrow, as GameStop shares have been lately.

That could also explain the stock's even more dramatic run up over the last two days. The WSB group has previously denied any involvement in the stock's spike. But it's worth noting that these sorts of short squeezes are often the result of a coordinated attack. Here's a bit from a Business Insider story in 2013 about a similar short squeeze:

In particular, the Street's short sellers — who make money by borrowing shares they believe to be overpriced, selling them, and then buying them back at what they hope will be a lower price — will be squeezed out.

Short sellers, who are often motivated by the belief that the stock market is a zero-sum game and that someone must lose for them to win, are among the most vocal critics of corporate executives and their strategies.

In other words, the short sellers who were betting against GameStop were also likely the ones who wanted to see the company fail.

A short squeeze, then, is really just a case of a bunch of people who thought they'd be able to make money by watching a company fail realizing they'd made a huge mistake. 

So what happens now?

It's hard to know.

There's a chance that WSB will get out of the way, and that the stock will fall back down to Earth. GameStop's stock is still down about 50 percent from its peak, so that could be a good bet. On the other hand, it's possible that this is only the beginning of the story.

The company is looking for a buyer, and the WSB group could, in theory, be trying to drive up the price of the stock because they want to see it go to a particular bidder or because they want to short it again at a higher price.

We've reached out to WSB and will update if we hear back.

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See Also:

SEE ALSO: GameStop is planning to sell itself — here are the companies that could buy it


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