Earlier in the week Game Stop (GME) stock went from under $20 to over $200 in 2 days. The stock was being shorted by a company called Melvin Capitol. Shorting a stock means they borrow someone’s stock and owe them the stock or the value. The reason people short stocks is if they believe it will go down. If the stock goes down they can buy it at a cheaper price and return the borrowed stock making the money in between the previous and current value.
Melvin Capitol is a hedge fund that manages peoples money. People invest in the fund, and the fund invests there money hoping to get the investors money. The fund has over $12 billion dollars in it. Melvin Capitol shorted 130% of the Game Stop (GME) stock on the market which means they shorted more than existed. They were shorting the stock from $7.00. Every dollar the stock goes up they owe every share they shorted $1. From the amount of shares they were shorting, it was calculated that every $12.00 Game Stop (GME) stock goes up, they lost $1 billion. The banks saw that Melvin Capitol was losing money and demanded they buy back the stock so they ca cut there losses. This causes a short squeeze where many shares of the stock are bought pushing the stock up even further. The stock went up to $500 at one point, and there is no sign of it slowing down yet. If the stock continues to go up it may push Melvin Capitol into bankruptcy. The CEO of Melvin already took some loans from friends for billions of dollars and lost it all plus the original $12 billion. If the stock doesn’t go down that money is all gone.
The Wall Street Bets is a bunch of people who invest in stocks. Many of them YOLO. YOLO means You Only Live Once, meaning take huge risks to make a lot of money. Some of them lose all there money and others become overnight millionaires. The Wall Street bets group found out that Melvin Capitol was shorting the stock and causing it to be very undervalued. They all grouped together and bought the stock which is what caused the stock to go up in the first place. It’s estimated they own approximately 25% of Game Stop’s (GME) shares. They all decided together not to sell. They call it “diamond hands”. They are predicting the stock will go up over $1,000, and aren’t selling until it does. The biggest investor from the group has been buying Game Stop (GME) stock for over a year predicting this would happen. He started out putting in $50,000 and kept adding until he’d invested $700,000. On Wednesday when the stock went up to over $300 his $700,000 was worth over $40 million. He didn’t sell and on Thursday the stock went up to over $500.
While Melvin Capitol is losing a lot of money many people have turned a few thousand dollars into tens of thousands or became multi millionaires overnight. The Wall Street Bets group was kicked off discord and Reddit so they can’t communicate, but they were put back on Reddit. Many stock trading platforms have been limiting how much users can trade Game Stop (GME) Stock with some restricting all purchases. If fewer shares are being bought the stock may plummet. Rumor has it that Melvin Capitol will go bankrupt if the stock doesn’t go under $200 by Friday. We will have to wait and see what the future holds.
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