Introduction
In early 2021, the financial world witnessed an unprecedented event: the GameStop and AMC short squeeze. This phenomenon, where retail traders orchestrated a massive surge in the stock prices of these two companies, left hedge funds and institutional investors reeling. In this article, we will delve into the details of this remarkable event, exploring its causes, key players, and the aftermath.
Background: The Rise of Retail Trading
The COVID-19 pandemic led to a significant increase in retail trading, as people turned to online platforms to invest and trade. This shift was fueled by the proliferation of trading apps and social media forums, such as Reddit's r/WallStreetBets. The subreddit, founded in 2012, became a hub for retail traders to share information, discuss strategies, and coordinate their efforts.
The Short Squeeze: GameStop
GameStop, a struggling video game retailer, was a prime target for short sellers. By January 2021, approximately 140% of its public float had been sold short, meaning some shorted shares had been re-lent and shorted again. This created a perfect storm for a short squeeze.
On January 11, 2021, GameStop announced the appointment of three new directors, including Ryan Cohen, the founder of Chewy. This news sparked a rally in the stock, which was further fueled by the involvement of retail traders on r/WallStreetBets. As the stock price rose, short sellers were forced to buy back shares to cover their losses, driving the price even higher.
The Short Squeeze: AMC
AMC Entertainment, the world's largest cinema chain, was another company heavily shorted by hedge funds. As the GameStop short squeeze gained momentum, retail traders turned their attention to AMC. The stock price surged, causing significant losses for short sellers.
Key Players
- Keith Gill (Roaring Kitty): A prominent figure on r/WallStreetBets, Gill's posts and videos about GameStop helped galvanize the retail trading community.
- Ryan Cohen: The founder of Chewy, Cohen joined GameStop's board of directors, sparking the initial rally in the stock.
- Elon Musk: The Tesla CEO publicly endorsed GameStop, further fueling the surge.
- Citron Research: A prominent short seller, Citron Research was forced to close its position in GameStop, incurring significant losses.
Statistics and Metrics
- GameStop's stock price: Rose from $17.25 on January 4, 2021, to $76.79 on January 25, 2021, a gain of over 344%.
- AMC's stock price: Rose from $1.90 on January 27, 2021, to $72.62 on June 2, 2021, a gain of over 3,720%.
- Short interest: Approximately 140% of GameStop's public float had been sold short by January 22, 2021.
Aftermath
The GameStop and AMC short squeeze had significant consequences for both retail traders and institutional investors. Hedge funds such as Melvin Capital and Citadel suffered substantial losses, while retail traders celebrated their victories. The event also sparked regulatory scrutiny, with the U.S. Securities and Exchange Commission issuing guidance on market volatility.
Resources
- "The AMC Short Squeeze Explanation" - https://www.tradingsim.com/blog/the-amc-short-squeeze-explanation-tradingsim
- "A Timeline of the GameStop Short Squeeze" - https://www.thestreet.com/investing/stocks/a-timeline-of-the-gamestop-short-squeeze
- "Meme Stocks GameStop and AMC Extend Short-Squeeze Rally" - https://markets.businessinsider.com/news/stocks/meme-stock-rally-gamestop-amc-short-squeeze-gains-blackberry-sunpower-2024-5
- "How Reddit and WallStreetBets Blew Up GameStop's Stock" - https://www.vox.com/the-goods/22249458/gamestop-stock-wallstreetbets-reddit-citron
- "GameStop Short Squeeze" - https://en.wikipedia.org/wiki/GameStop_short_squeeze?wprov=sfla1
- "GameStop Timeline: A Closer Look at the Saga That Upended Wall Street" - https://abcnews.go.com/Business/gamestop-timeline-closer-saga-upended-wall-street/story?id=75617315
- "Short Squeeze" - https://www.wallstreetprep.com/knowledge/short-squeeze/
- "Revisiting GameStop's Epic 2021 Short Squeeze: A Timeline of Notable Events" - https://seekingalpha.com/news/4106226-revisiting-gamestops-epic-2021-short-squeeze-a-timeline-of-notable-events
Other Information
- Reddit (r/WallStreetBets) - https://www.reddit.com/r/wallstreetbets/
- U.S. Securities and Exchange Commission - https://www.sec.gov/
- GameStop - https://www.gamestop.com/
- AMC Entertainment - https://www.amctheatres.com/