What happened with GME

Anthony Imperiale, staff

Last month, Gamestop stock exploded from $19 to $347, a price increase of almost 1,800%. The infamous group of day traders, r/wallstreetbets, ran up the stock to squeeze Wall Street firm Melvin Capital. Melvin Capital took on puts, a bet that the price of a stock will fall, on many struggling businesses like Gamestop in late September. A put is a very risky bet, a trader borrows shares from a lender, and the trader is contractually obligated to give the shares back to the lender at a later date. Once the trader receives the shares, they sell them immediately, then buys them back at a later date, a process called covering. By running up the price of the stock to insane highs, Melvin Capital is forced to cover, buy back, stock at that price, thus losing money. Wallstreetbets is able to do this, as the risk is split between all 8 million of its members, an individual trader can only lose as much as they are willing to risk, but Melvin Capital is forced to take on all the risk themselves. This event has made millionaires overnight, and has cemented wallstreatbets as a force to be reckoned with in the trading world.