Share
January 28, 2021 The White House "is monitoring" the situation regarding the race on Wall Street for the title of GameStop, a video game company that has seen its titles soar by 700% since the beginning of the year.
Spokeswoman Jen Psaki said so.
"Our economic team, including Treasury Secretary Janet Yellen, are monitoring the situation. It is good to remember that the stock market is not the only measure for the health of our economy," he said.
A few simple words, very detailed, which do not hide the concern for what is happening in the "games" of world finance. A new subject has entered the field who does not respect any rules, who can invest and risk losing large sums because they are divided into thousands of micro-sums collected on the Net among very young people who just want to play and have fun with financial speculation, and that puts them in crisis who, on the basis of rules never written, but always followed, has made downward speculation their source of enrichment.
The analysis
In the last month, GameStop stock has grown by 333%.
The popular chain of video game stores is the subject of an unprecedented action in the world of finance: a coordinated group of users of Reddit, a platform halfway between a social network and a forum, has decided to start buying shares at the most critical moment of the story of the Texan giant, displacing institutional investors and causing them huge losses.
On a
Reddit channel
(r / wallstreetbets) that has around three million subscribers, amateur investors have been exchanging thousands of messages for weeks encouraging each other to buy GameStop shares.
The effect is that the stock of the company has gone from $ 3 in mid-2020 to $ 370 at this time, reversing a bearish trend suffered by the company due to a deep crisis that has been going through it for some years, and that the restrictions the displacements due to Covid-19 have accentuated.
And shares continue to rise at the S&P 500, where they have risen by another 230% in the past 24 hours, leading the stock to appreciate by 1,700% over the past year.
The one organized on Reddit is a challenge
The opponent is Wall Street and the short sellers who have been betting on the collapse of the title for a few months.
The GameStop crisis has caught the attention of shortsellers, who borrow shares from institutional investors and place them on the market aiming for their collapse, earning if their bet is won.
This is what happened at GameStop until the Reddit cavalry arrived.
According to the
Wall Street Journal
, the surge in the company's stock caused large losses to some large investment firms.
At least in one case, explains the financial daily, one of these funds required an intervention amounting to 2.75 billion dollars to cover the losses.
The origin
The actual GameStop rally started on January 11th.
The company then agreed to add three new managers to its board of directors.
The consequence was that the stock began to rise.
On Reddit, posts from users began to appear fantasizing about what to do with the money earned from that rebound, which many were already betting on.
From there began the ascent at a dizzying pace of the title, first pushed by the users of the forum eager to participate in the 'banquet' of the bullish trend, but soon the market that accelerated the phenomenon was added.
And from there to records were added other records, in a spiral of enthusiasm rarely seen on Wall Street.
Not at least behind a title from a company in obvious difficulty like GameStop.
Behind the success of the "Wall Street Bets" operation there is a mix of social virality and financial competence.
If Reddit served to create background noise, with thousands of posts made up of memes, scrapes and invitations to invest in GameStop, the rest did the financial instrument of choice: call options.
Used in a way 'contrary' to that of the investors who ditched the stock of the Texan company.
Options are financial instruments that have no autonomous value, but are linked to an underlying asset.
And the underlying can be made up of stocks, bonds, commodities.
In this case it is the GameStop actions.
How it works
These are contracts that give a buyer the right to buy or sell a financial asset at a certain price on a certain date.
The option where you buy is called
call
, the one where you sell
put
.
In the call option, you bet on the rise in the share price: if the stock rises more than agreed, you earn on the date of its purchase.
Conversely, in that put you bet on the downside: if the stock falls more than agreed, you earn on the downside.
In both cases the aim is to gain from the performance of a stock, betting on its rise or protecting itself from its loss.
And on the battlefield of options the two opposing factions have faced each other: Wall Street against Reddit, financial investors against a dust of thousands of micro investors.
40 million contacts a day
Options are a tool that has become very popular in recent years.
According to data from the WSJ, in 2020 they set their historical record with an average of 30 million contracts per day.
And this year we are already traveling at the rate of 40 million contracts every 24 hours.
It is not known how many of these contracts go through the 3 million of the Reddit channel.
The fact is that in the world of finance a new phenomenon could soon be registered: having to deal with the 'mimetic' effect of the vitality of social networks, where users encourage each other to invest in an action by determining the stock market dynamics.
In fact, there was no real reason for earning behind the investment in GameStop.
As mentioned, the company is in structural crisis and in the last year it has had to close many of its approximately 5,000 stores, some of which are also present in Italy.
But a series of posts were enough in which 'influential' people in that channel claimed that the title was losing more than it should, that GameStop could become a good opportunity for earnings to engage the bullish spiral.
Elon Musk's role Elon Musk
has also entered this whirlwind of enthusiasm: the founder of Tesla in a tweet on January 26 wrote: "Gamestonk", playing on the name of the company, but replacing Stop with "stonk", a burst of fire.
In the tweet Musk also linked the Reddit channel where at that time he was encouraging to invest in the company.
The surprise of "traditional"
finance Finance professionals are surprised.
Nobody knows how to explain the phenomenon or can imagine the effects it could have in the future.
GameStop demonstrates that today, through social media, but above all the "memes", it is possible to organize hundreds of thousands of individual investors and move the dynamics of the market.
"They are like the velociraptors in Jurassic Park: they get smarter and smarter, and eventually they jump the fence," is the powerful image of a financial analyst collected by BuzzFeed.
Moved by enthusiasm, by the desire for immediate earnings, but also by a deep-rooted rhetoric against white-collar finance.
The challenge has just begun.