What Is The GameStop Short Squeeze?
What is happening right now with GameStop ($GME) is the dawn of a new paradigm in trading and investing in the stock market.
This Friday (1-29-21) and Monday (2-1-21) will be the greatest short squeeze of all time. A biblical squeeze for the ages. Finance students will study this happening for the rest of time.
For anyone who doesn’t know what a short squeeze is, here is what is happening:
Basically, a bunch of hedge funds have been shorting GameStop’s stock because they saw it as a failing mall retailer. And they’ve been getting fat, happy and very complacent. This will be some of their undoing.
When you short a stock, you are betting that the price will go down. Naked shorting is when you are betting a stock will go down without having the underlying security to cover your bet. This is important because if the price goes up enough beyond your short, you will be forced to cover you short position by buying the underlying security at whatever price you can get it at.
If you short a stock at 5 and the stock goes to 10, you then have to buy the stock at 10, in effect losing the 5 point spread between your short price and the actual price.
The really insane part: hedge funds are shorting 140% of $GME shares.
This means there is not enough outstanding shares to cover the shorts.
GameStop is the #1 most shorted
stock on the market right now.
As of today, GameStop was the most traded stock on the market. More $GME shares and options were bought today than Apple ($AAPL) or even Tesla ($TSLA).
And the price as of writing this is 220, a +143 point change, a +92% increase today!
And now that Jim Cramer, the Wall Street Journal and CNBC have been putting out stories on /r/wallstreetbets, I expect more ‘retail traders’ to pile into $GME, if not for the promise of huge gains then to stick it to the Wall Street hedge funds that have been sticking it to all of us for years.
Think about it, these billion dollar hedge funds short stock on struggling companies HOPING it will hurt them even more, while snickering and getting fabulously right in the process.
And that is why this is personal for a lot of people. It goes beyond just wanting to make a good trade. I’ve seen people going all in at all time highs just to finally get one over on a parasitic hedge fund, who are all feeding on the carcass of the middle class.
Well, I’m all for it, and only wish I had bought more shares to begin with.
The memes, gains and schadenfreude will be glorious!
Fellow investors: buy, hold and we will all win together.
And tell your friends too.
Will R Compton
Founder, Investing Alpha Inc.
P.S. Tell all your friends to buy and HOLD $GME shares until Monday (1-26-21)
P.P.S. I’m not a professional, do your own research, none of this is advice, just the opinion of some guy on the internet.
Here is my case for why you might want to think about not diversifying your portfolio.