The US video game retailer GameStop has broken records again after its share prices surged by a whopping 144% recently. Earlier this year, their shares had already risen to 245%.
However, trading was stopped because of volatility. According to traders, people went a short-squeeze to compensate for any losses they might incur. Retail investors also took the opportunity to benefit from the sudden rise.
A few of the investors believe that GameStop’s business model is obsolete, and can no longer work in the current climate, so they chose to bet against the video game retailer. According to analytics data by FIS’ Astec, 100% of the company’s shares were already being offered on loan, so it was clear that the betting was short-term.
The strategy that short-sellers adopt is that they purchase those shares that might decrease in price and then sell them. After this, when the price drops, they purchase them at a decreased price, to gain a profit.
After the announcement, earlier this month that the company would be putting in more efforts to make more digital sales, the share price increased.
However, Citron Research believes that GameStop’s share price would drop in price in the future. This seems likely considering GameStop has been struggling recently, because of the coronavirus pandemic – and has ended up closing multiple stores across the country.
According to a lead analyst from Telsey Advisory Group, a short squeeze is responsible for the rapid rise in the share price and valuation.
GameStop also reached a record high of 2.13 million contracts when its options rose quickly. According to Trade Alert, the GameStop options contracts traded, were four times the predicted value, amounting to an approximate volume of $355,000.
According to the chief market strategist from TD Ameritrade, this is a very tricky gamble, just like a game of musical chairs.
He believes that since this sudden surge is not usual if you are not careful, you will be the one left without a chair, and you won’t have any options to sell the stock. He also added that the share price can drop as rapidly as it has surged.