Stocks have entered a kind of speculative frenzy.
You’ve no doubt heard or read about Gamestop (GME) the bricks and mortar video game retailer.
The company has been in trouble for months, failing to turn a profit since 2018. And this is happening despite revenues growing.
Because of this, hedge funds have taken MASSIVE short positions in this company, borrowing shares from their brokers to bet that GME’s stock will collapse as the company lurches towards bankruptcy.
How big were the bets against GME’s stock? Well over 100% of the company’s shares are currently being used by shorts.
Yes, short sellers can technically borrow more shares than actually exist. And that’s where the speculative frenzy comes in.
Individual traders,(not institutional traders or hedge funds), who are big fans of GME’s business have launched a campaign to trigger a short squeeze in GME shares.
Remember how I said the short sellers had “borrowed” GME shares? Well, this means that they need to return those borrowed shares to their brokers at some point.
The only way to do this is by buying GME’s stock.
As a result of this, GME shares have gone from $20 to over $200 in pre-market trader today. And they’ve done this in the span of two weeks.