Monday 25 January 2021 4:43 pm

GameStop shares up 60 per cent in Reddit-driven tug of war

Shares of US videogame retailer GameStop were up 60 per cent today, as online traders who appeared to congregate on Reddit continued to cause the stock price to rocket.

Shares in GameStop are up 250 per cent so far this year, which has been attributed to short-sellers quickly buying back into the stock to cover potential losses.

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But there is an ongoing battle between Reddit day traders and short-sellers that has led to a short-squeeze.

According to the Financial Times, GameStop has been a favourite stock of day traders on Reddit forum r/wallstreetbeats.

A tug of war emerged late last week after short-seller Citron Research said it had placed a bet against the stock and that the company was “pretty much in terminal decline”. In response the Reddit day traders pushed the price of the stock through the roof.

Last week Citron tweeted GameStop stock would be “back to $20 fast”, and described the GameStop buyers as “suckers in this poker game”. This morning GameStop’s price was $160 per share.

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Trading of the stock was halted on Friday after Reddit day traders push the price of the stock up 70 per cent.

Short sellers typically borrow and sell shares in companies they expect will fall in price, hoping to buy them back at a lower price and pocket the difference.

The trading strategy is high risk in that losses are theoretically unlimited when the stock rises instead of falling.

At 11:19 this morning GameStop shares were up 46.8 per cent at $95.10 in premarket trading in the United States while surging more than 70 per cent in cash trading in Germany.

“I think this is like a carousel this morning: U.S. retail is adding fuel to the fire on Friday, which triggers German retail to massively buy (…) and then U.S. traders see this massive rise overnight and pile on again,” a Berlin-based trader said.