Major hedge funds had bet billions of dollars that GameStop’s shares would fall. And some of the research on Reddit indicated that positions taken by short-sellers accounted for more than 100% of existing GameStop shares.
Many amateur traders had done research showing what a risky position those hedge funds were in. This was an opportunity that amateur traders were willing to exploit. A pool of amateur investors drove up the share price by more than 700% in a week. That caused GameStop’s market value to increase to more than $24 billion from $2 billion in a matter of days. Its shares have risen more than 1,700% since December. Between Tuesday and Wednesday, the market value rose more than $10 billion.
Those who did well out of the deal, investing sums like $1,000 in GameStop shares and making $2,000 profit on top of that provided the got out on time. The theory was that as the GameStop share price continued to go up, the people who shorted the stock would be forced to buy those shares at whatever price to close their short.
However as the buzz and action around GameStop shares grew, regulators moved to restrict trade. Retail investors found themselves suddenly shut out by their trading platforms, unable to keep buying shares in GameStop and certain other companies. This caused a sharp drop in prices , getting the hedge funds out of the bind.
GameStop shareholders were the biggest winners in this ordeal. Ryan Cohen—the largest share-owner in the company, reportedly owns 9 million shares bought in 2020 at an average price of $8.43 for a total cost of $76 million at the time, according to Bloomberg data. The 35-year-old’s shares were worth $3.1 billion. That’s a 4,000 percent return on his investment.
Not everyone who owned GameStop shares had a happy ending story. Those who joined the party late bought shares at their peak lost money after regulators moved in to save the hedge funds.
On the Goliath side, one of the two major investors that surrendered, Citron Research, acknowledged Wednesday in a YouTube video that it unwound the majority of its bet that GameStop stock would fall. Andrew Left, who runs Citron, said it took “a loss, 100 per cent” to do so, but that does not change his view that GameStop is a loser.
“We move on. Nothing has changed with GameStop except the stock price,” Left said. He did acknowledge that Citron is taking a fresh look at how it bets against companies, in light of the GameStop campaign.