Welcome back and after yesterday’s article, you may be asking why Gamestop is rocketing to the moon? I’m going to give you some background so the current situation makes more sense to you.
Many things have contributed to the situation we are seeing this week. This includes: commission-free trading, online trading platforms and apps that are user friendly like Robinhood or Webull, $1200 stimulus checks to the masses, and social media and online channels/forums to talk through ideas, and lastly, a pandemic where so many people are stuck at home.
So, many of us know of Gamestop. Quite frankly, it seems like a dying business. Gamestop (GME) is a beaten down retailer that most of (professional) Wall Street expects to fail.
The business model of GME is like this: They let customers rent physical video game cartridges from physical locations, like a kind of Blockbuster Video for gaming consoles.
Nearly everything about the GME business model, from the brick-and-mortar stores, to the physical game cartridges, to the challenge of surviving a pandemic, smells like an extinction event, with the death of Blockbuster Video as a kind of template.
As a result of this gloomy outlook, GME had the second-highest “short” float of any publicly traded stock, meaning that short sellers were making highly aggressive bets that the company would fail. Read our blog post from yesterday here to learn more about shorting a stock.
The shorts had been fighting a losing war against GME at least since August, when the share price steadily began to rise.
But a few weeks ago, an army of Reddit-savvy retail traders decided to make GME their next high-profile bull raid target, figuring they could trigger a massive “short squeeze,” the term for what happens when a tsunami of long-side buying power forces the shorts to buy their shares back at much higher prices.
That bullish news was enough to send GME shares rocketing higher, to the tune of more than 100% gains in two trading days, on trading volume in the vicinity of 125 million shares.
This is why Gamestop is rocketing to the moon. Do you want to figure out how to do this too? Set up a FREE consultation with us and let’s get started! Click here.