Wall Street’s mania about GameStop is back on track for at least an afternoon.
The troubled video game company’s shares doubled to $ 91.71 apiece on Wednesday, the stock’s best day since January 27, when it cost $ 347.51 a share.
A rally at GameStop was rare as it fell back to Earth earlier this month. The stock, which rose 1,600% once in January, was extremely volatile. So far in February it is down nearly 72%, although it is still up nearly 387% this year.
AMC Entertainment, another stock hyped by online social media forums, rose 18.1%. The cinema chain’s stock is up nearly 60% this month and about 329% this year.
The sudden, sharp move higher at GameStop and AMC Entertainment even left some members of Reddit’s WallStreetBets forum behind, cheering and scratching their heads on the meteoric rise in stocks last month.
“Can we honestly say what we think is happening?” wrote a Redditor. “Is there a reason for this 150% spike?” asked another.
GameStop’s wild ride shocked Wall Street, forcing the market to gear up for more volatility. This prompted Congress to hold a hearing in the House of Representatives last week to see what led to the frenzy and whether smaller investors need to be protected from taking big risks.
Individual investors on Reddit and other social media forums encouraged each other to buy GameStop, AMC Entertainment, and pick other stocks to hurt hedge funds that were betting the stocks would go down in value. This movement, known as a “short squeeze,” can induce traders who used options to bet against a stock to abandon their bets. To do this, they have to buy shares in the stock, which drives the price even higher.
GameStop was an extreme example as some of its stocks were sold short multiple times.
Gust Kepler, CEO of the stock and options platform BlackBoxStocks, said he became aware of “aggressive buying” of call options on GameStop stock at around 3:30 am EST on Wednesday. A call option gives a trader the right to buy a stock at a certain price at a later date.
“I’m not sure there will be another short squeeze like the previous one, but there are likely some funds that have stayed short provided the dust settles,” said Kepler.
Another possible reason for GameStop’s sharp move: The Grapevine, Texas company announced on Wednesday that its chief financial officer will step down on March 26th.
“The CFO has left the company and there is talk of the company finally moving from a brick and mortar company to a digital delivery of its product, so we believe the stock has skyrocketed at the end of the day today” said Kepler.
Some of the traders who bought GameStop’s shares last month said they were optimistic that new board member Ryan Cohen, founder of online pet store Chewy, would help change the troubled retailer’s fortune.
The company is struggling to adapt to the surge in mobile gaming and digital downloads that made its 5,000+ stores obsolete, even more so during the pandemic.
Some market watchers speculated that GameStop’s surprise revival was a response to critical comments from Charlie Munger, Warren Buffett’s right-hand man.
Speaking to the Los Angeles Daily Journal’s annual meeting on Wednesday, Berkshire Hathaway vice chairman noted the GameStop stock craze among retail investors who he said were on the stock market.
“This can happen when a lot of people use liquid stock markets to gamble like they would when betting on racehorses,” Munger said.
The remarks didn’t get Munger many admirers at WallStreetBets. A Redditor posted a chart on the forum showing GameStop stock rising, adding, “TAKE CHARLIE MUNGER.”