GameStop stocks have been soaring, mostly fueled by what seems to be a mob of rash investors and putting at risk the positions of some high-profile short-sellers.
Mainly aided by retail traders, GameStop Corp (GME) has gained 434.55%, posting gains for the third consecutive week.
The company, which is expected to lose money this year and the next, has quadrupled its value since the beginning of the year, increasing fears of market manipulation. This led to hedge fund Melvin Capital to close out its short positions, forcing a short squeeze and driving prices even higher. Melvin Capital had about $55 million worth of put options on GameStop, as they were expecting the company's stocks to fall eventually.
What began as a joke in the Reddit r/WallStreetBets forum ended up turning into a headache for high-profile Wall Street investors and may cause US regulators to scrutinize this event.
“If I put $GME on your radar, and you did well, I’m genuinely happy for you,” commented a famous investor on his Twitter account. “However, what is going on now – there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.”
The SEC already announced that they will monitor the market volatility in the options and equities markets, though they didn't mention whether they will take further actions to halt the rally.
Other companies that are benefitting from this are Blackberry and AMC Entertainment, whose sudden gains in value don't exactly make sense either.
Yesterday, the US stock markets closed mainly in negative territory, due to the recent FOMC assessment of the economic situation, which was everything but optimistic about the last months. The Dow Jones Industrial Average fell by 2.05% during the session, closing at the 30,303.17 level, followed by the S&P 500, which fell by 2.57% and closed the session at the 3,750.77 level.
Similarly, the NASDAQ 100 dropped by 2.80%, closing the session at the 13,112.65 level, followed by the NYSE Composite, which felln by 2.55% and closed at the 14,487.73 level.