The Strange Soar of GameStop Stocks

The outlook for GameStop is not bright. The Texas-based video-game retailer is losing money and is expected to close the year in the red.

Its business model is in danger. Consumers don’t go to physical stores anymore to buy games. They seldom buy online anymore. Downloading is the name of the game now. 

Still, GameStop shares have skyrocketed about 300% so far this year.

How come?

With the help of an army of day traders from social media platforms like Reddit and Twitter, and other chat forums.

With the price increasing, the volatility spiked too, and the NYSE halted the stock multiple times on Monday (January 25). First, it jumped 145%, to $159, then it dove below Friday’s close but ended the day 18% up, at $76.79.

Four months ago, its price was just $6. And the current median target price set by analysts is about $8.

 

It’s a clear case of speculation. 

Gamestop stock started to rise two weeks ago when it was announced that activist investor, Chewy co-founder, and former CEO Ryan Cohen is joining GameStop’s board. The news fueled hopes of a strategy change.

The price climb attracted hedge funds and traders who bet against the stock. 

On the other hand, something curious happened: retail investors and day traders were encouraging each other on social media to buy GameStop shares and options, pushing the price higher and pressing out short-sellers. 

It was like a punishment for them.

When a shorted stock trades much higher, short-sellers would have to buy back shares to reduce their loss, which keeps fueling the rally. That’s precisely what is going on.

According to CNBC, GameStop was the most actively traded stock on the Fidelity platform on Monday, company data showed.

The ones betting against the video-game retailer stock have lost a pretty significant amount of money so far: over $6 billion year-to-date, according to data from financial analytics firm S3 Partners. 

The rally probably won’t continue indefinitely. “Investors looking for a sign we are closer to the end could look at the 6-week streak of call volume outpacing put volume finally being broken,” wrote Susquehanna, co-head of derivatives strategy Chris Murphy in a note.

Another company that is resurrecting in the stock market is BlackBerry. It rose 28% this Monday. And tripled this year.

Responding to a request from regulators, the Canadian company – once an unquestionable market leader in smartphones – said it’s unaware of any reason for the spike in the stock price.

The company has been shifting its strategy from smartphones to cybersecurity and the Internet of Things, but, according to most analysts, this is not exactly new and can’t explain the recent sharp rise.

Reuters reported that security filings show that some BlackBerry senior executives sold company shares last week – Chief Marketing Officer Mark Wilson sold 78,500 shares and Chief Financial Officer Steve Rai sold 32,954 shares.

This Monday, BlackBerry traded above $20 for the first time since 2011, when it was still selling phones.