GameStop’s stock skyrockets as Reddit users unite to increase the stock’s value.
GameStop’s stock was one of the most actively traded stocks in the pre-market on Thursday, as amateur traders continue to push it upward, while collectively facing some of Wall Street’s most sophisticated investors. They piled on negotiations around companies – large and small – that other investors had lowered, pushing stock prices to stratospheric levels.
The main focus is GameStop, the problematic video game retailer. Its shares rose about 40% in pre-market trading, a much more moderate gain after trading platforms imposed restrictions on shares. But it has already risen 1,700 percent this month, including Wednesday’s 135 percent rise, which gave the company an astonishing $ 24 billion market valuation. AMC Entertainment rose 300 percent on Wednesday, and BlackBerry rose more than 275 percent this month.
Billions of shares were traded on Naked Brand, a clothing maker, on Wednesday. The stock price rose from 39 cents to $ 1.38, a 252% gain. It was again one of the most traded stocks in the pre-market on Thursday, up 110 percent after being quoted on a Reddit forum. The company had been trying to orchestrate its own turnaround and escape the status of “low-cost stocks” to avoid being removed from the list.
Rising stocks have disengaged from the factors that traditionally help establish a company’s value to investors – such as growth potential or profits. But piling traders are probably not thinking about these fundamentals.
Instead, they are part of a frenzy that appears to have originated on a Reddit message board, WallStreetBets, a community known for irreverent market discussions, and on messaging platforms like Discord. Both Tesla’s Elon Musk and billionaire technology investor Chamath Palihapitiya encouraged the crowd via Twitter.
Encouraged by message boards, these brokers are rushing to buy option contracts that will profit from rising stock prices. And that trading can create a feedback loop that raises the prices of the underlying shares, as the brokers that sell the options need to buy shares as a hedge.