The Gamestop Craze Explained

By Jacob, 20, Concord, Massachusetts

I used Reddit solely for memes. Memes to me are the currency of communication. The images and phrases that define and capture iconic moments. They are pervasive across social media. After years of getting curated pages on instagram I decided I would venture to the source: Reddit. What is Reddit? Reddit is a place where topics and ideas are arranged in communities(subreddits). I joined all the classics: r/lotrmemes, r/prequelmemes, r/memes etc, and I was happy. Then just over a year ago I started getting recommendations to check out r/wallstreetbets, thus entering a side of reddit I had never seen. Typical subreddits are self-deprecating and aware of their own silliness. WallStreetBets(WSB) took this to the extreme, the original infoline for the page was: “Like 4chan found a Bloomberg terminal”. Back then it only had about 500,000 followers, this expanded to about 1.1 million when Barons magazine spotlighted it as their cover story in December of 2019 (partly how I discovered them). If institutional investors had paid attention then, perhaps they would not be in the mess they are now.

The basic trading strategy of those on WSB was this: if you thought the stock would go up you were bullish(a bull) and you would buy call options, if you thought it would go down you were bearish(a bear) and would buy put options.

I lurked there for a while, despite the self aware stupidity, the mob was still able to have a reasonable debate for the months of February-April (pre and post crash of March) of whether you were bullish or bearish on the market. A lot of people made a lot of money causing a great sense of FOMO, a lot of people lost a lot of money . Among the pain and glory there were some epic memes. It was the best of times, it was the worst of times. One of the best videos that summed up the financial situation and sentiment of the subreddit is linked here: The Federal Reserve vs. COVID-19

As we entered the lost months of April and May of 2020, WSB slowly grew in popularity and perfected its meme craft, 1.5 million followers strong. One popular method of getting upvotes on a post was to say if a stock did not reach a certain level by a certain day you would do something crazy. After witnessing some of the crazy things that people did my interest in WSB waned significantly. I was aware of its presence but the FOMO from gains post as well as the disgusting over the top nature of it, was too much to bear coupled with the pandemic. I decided it best to confide in my own fiduciary advice and only occasionally check out WSB when something crazy happened in the market. 

Enter Gamestop(GME), or GameStonk, at the end of January. I was first alerted to this red hot craze on Monday the 25th and texted my roommate who actively trades options if we could meet later in the week to discuss. Apparently, a user  had struck gold and had been buying options in anticipation of a short squeeze for over a year. I will not attempt to explain all the technicals behind a short squeeze- essentially, it works to drive a stock price artificially high. We scheduled a time for that upcoming Friday, thinking that 4 days was no time in the stock market. But things moved more quickly than either of us could have ever anticipated. 

Monday it was at $40. This is when the boomers and institutional investors started to catch wind of it, but it was not more than a headline: just banners beneath Cramer on CNBC, while the hedge funds managers went on to talk it down. They said there is only downside risk, no upside value remaining.

Tuesday it was at $120. It got a segment as just another short squeeze but it was nothing special, a run of the mill market event that wouldn't mean anything after a week. WSB caught wind that some hedge funds were shorting it. The spark was lit, the narrative formed. This could be big, this could be revenge for 2008, this could be a time to take back the financial control that people had lost post 2008/09 financial crisis. For people who had lost their jobs, their homes, their dreams, to take back some fiscal freedom. The story took hold, the story of people ripping down the elite institutions who always stacked the deck against them and never suffered consequences when they lost. Robin Hood the app was finally living up to its namesake. Gamestop’s motto was power to the players, this was power to the traders. Blood was in the water.

Thursday it was at $400, I couldn’t resist and bought it at $315. The narrative was too inviting and I wanted a ticket to the ride. A piece of the pie and the ability to say I was part of this movement. Even my cousin, who lives in New Zealand, sent me some Bitcoin so that I could buy a share of GME in his name. This was also when Robinhood stepped in. They halted buying  and opening of new positions as Melvin Capital(the hedge fund that was shorting Gamestop) also provided Robinhood with 40% of its revenue. Ironic isn’t it, the trading service named after a man who stole from the rich and gave from the poor halted the “free market” to protect the rich. Congressional leaders took notice, and bipartisan calls were made to investigate this ill fated turn by Robinhood. As typically is the case nothing has yet to come of it at time of writing. 

By the time Friday came around, there was no need to chat with my roommate. I had been taken on a crash course of short squeezes and options trading that week. The dust was beginning to settle, WSB traders were being told to hold the line and not sell their shares while hedge funds tried to cover their puts. Investors bought billboards from Oklahoma City to Times Square encouraging people to hold and not sell. The whole world seemed to have stopped to witness and even participate in this moment. “Diamond Hands” and “hold the line was the sentiment”. By this point WSB had grown by about 5.5 million subscribers in a week, to a total of 7.5 million. In this growth came infiltration. Bots started posting to sell the stock, or that people should buy AMC, Nokia, or Blackberry. These were a Ruse; attempts to divert attention away from the real battlefield. They didn't work. 

Yet the real damage had been done. By limiting trading, Robinhood allowed the hedge funds to sell their positions and make off like thieves in the night (except in this case it was in broad daylight) without being fully squeezed. The system proved once again that it favored the few, not the many. The little guy was left holding the bag, taken hostage by restrictive trading. 

Yet through all this turmoil and stock swinging, there were moments to be cherished. The people who did cash in some of their gains were frugal. They purchased Nintendo Switches and donated them to local hospitals. They created amazing memes to visualize the battle. A community of 8 million strong was formed on Reddit during a pandemic when large groups of people weren't able to gather. It was a movement and a moment that was exciting to be a part of, a way to bring together people across the world, that had not been since the Black Lives Matter movement.

What did this mean for me? It was invigorating, exciting to be a part of a movement. To have purpose and unity to a cause, however fleeting and joking. It was refreshing to be united and part of a community again. Despite not making any money myself it felt great to have contributed, in whatever small way to something that had changed the lives of so many ordinary people across the country in such a short period of time. There's a lot of talk of unity across the aisle and whatnot, this, for however brief a moment, gave us that: people from a multitude of backgrounds came together in this massive movement against elite hedge fund billionaires. We’ll see what happens next with the legal side of things but for that one moment there was unity.

So, now you may be wondering what comes next? Where can I make a quick buck and cash in on the next short squeeze? The answer is I don’t know. However, I do think this has eroded trust in financial institutions and pushed the everyday man to decentralized exchanges, specifically blockchain. Robinhood’s move to manipulate and stop trading is unforgivable. I will end this blog post in true WSB fashion: by listing my positions. 

Positions: BTC, ETH, LINK, GME, NAKD

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