Will GME Stock Continue To Rise?
GameStop’s (GME) share price continues to hit new and unwarranted heights, with hordes of traders rushing to buy the video game company’s shares, crushing short sellers and driving its price to astronomical heights. Shares of GameStop (NYSE: GME) have extended their recent run to a new all-time high, and users of Reddit group WallStreetBets are urging their members to “buy and hold” Gamestop shares in hopes of securing the stock and forcing desperate hedge funds to bid their shorts to cover their shorts. R / Wall Street BETS have been waging war on hedge funds for years, realising that if they buy en masse they could deal a blow to the smart money that shortens Game Stop stocks. [Sources: 0, 8, 15, 19]
As a result, professional Wall Street traders have made it clear that GME’s stock would continue to fall. Overall, the broader market and most stocks are expected to be in trend, with investors buying in to confirm the market’s upward trend. [Sources: 7, 9]
To stay away from GameStop shares and keep them long term, the first step is to invest in the company, open an account with a broker and look for a stock with 20-day trades. This is a safe haven for investors who have not yet bought shares. If the stock market rally returns to the old highs of the near future, that does not mean that political leaders will follow suit. [Sources: 8, 9, 18]
When professional traders bet that a stock will fall, Wall Street bets benefit when their community’s enthusiasm for the stock quickly drives up its price. When the meme stock finally melts, the buying frenzy will push up prices, and the retail investors who bought above will feel the pain. Remember that market makers don’t care if the share price rises or falls, they want as much trading activity as possible to make money from the spreads and commissions. When prices rise, shorts will pile up to buy the shares to minimize their losses. Instead, the shares are rising, and when the meme stock finally melts, it will cause panic in the market. [Sources: 7, 12, 20]
What happens to GameStop’s stock is partly due to a combination of a few factors: a high share price, a strong earnings report, and a Twitter mob that drives up the stock price, leading to a higher valuation. Individual investors are adding fuel to the fire, triggering weeks of exponential stock rises — price increases by using call options to bet on a price rise. A call option that allows (but does not require) investors to buy at a certain price is essentially a bet on whether a stock will continue to rise. Investors place relatively inexpensive option bets and sell the options when the option increases in price when share prices come close to their bet. [Sources: 1, 3, 13, 17]
Unlike other stocks targeted by WSB, traders can continue to buy the options and force investors who sell them to hedge their bets by buying GameStop’s shares. [Sources: 17]
This is a risky strategy, and if the stock suddenly soars, short sellers may have to bulk buy back shares or risk losing their shirt. When this happens, the short seller loses his shirt and stock prices can explode, while investors who had bet on a fall in prices withdraw from their trades. Institutional traders have only one option: either lose a catastrophic sum of money or buy back the shares when prices rise too high. [Sources: 4, 7, 16]
If the price rises, the investor must hedge his position by buying back the shares more. Then other investors might start looking at GameStop’s rapidly inflated share price and see a chance for cash, which would help bring prices down to more reasonable levels. The short seller must buy back shares to balance his position, but when share prices rise, he pays a high price and loses money. [Sources: 3, 10, 11, 14]
If the GameStop mania continues, he may have to liquidate his shares if he is not satisfied with the returns on his investment. If he doesn’t want to diversify his investments and needs cash, he may also need cash when the stock rises. [Sources: 13]
As the stock market becomes more volatile, the platform could experience a downturn, and only a fraction of the affected stocks will be able to sell or close their positions. The brief squeeze ended after retail investors began pocketing massive profits and pushing stocks like BlackBerry and AMC for them. But it could not stop until the SEC ends the short squeeze and the New York Stock Exchange closes for the first time in its history. [Sources: 2, 5, 22]
Sources:
[0]: https://www.kiplinger.com/investing/stocks/602158/gamestop-how-wallstreetbets-wsb-beat-hedge-funds
[1]: https://www.cnbc.com/2021/02/01/these-two-indicators-could-determine-whether-the-gamestop-rally-is-near-its-end.html
[2]: https://www.finder.com/buy-gamestop-corp-stock
[3]: https://www.usatoday.com/in-depth/news/2021/01/28/gamestop-how-did-stock-price-jump-so-quickly/4293221001/
[4]: https://abc7ny.com/gamestop-stock-price-reddit-robinhood-market-today/10130323
[5]: https://www.slashgear.com/robinhood-reveals-strict-new-volatile-stock-rules-limits-on-gme-amc-fractional-shares-29657318/
[6]: http://theangelatheatre.com/corsair-commander-kq7xv/aitx-stock-forecast-reddit.html
[7]: https://www.invenglobal.com/articles/13150/how-gamestop-gme-found-itself-in-the-middle-of-a-wall-street-war
[8]: https://www.fool.com/investing/2021/01/27/heres-why-gamestop-stock-skyrocketed-more-than-100/
[9]: https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-stock-market-rally-sell-off-gme-stock-tesla-rival-nio/
[10]: https://www.vice.com/en/article/qjpx8w/how-chaotic-redditors-made-gamestop-stock-skyrocket-and-made-short-sellers-cry
[11]: https://finage.co.uk/blog/how-to-analysis-gamestop-stock-is-gme-continue-to-increase
[12]: https://www.mergersandinquisitions.com/gamestop-short-squeeze/
[13]: http://test.stcharleschiro.com/jom-gabbar-ai4ke/why-is-gamestop-stock-up.html
[14]: https://arstechnica.com/gaming/2021/01/gaming-the-system-how-gamestop-stock-surged-1500-in-nine-months/
[15]: https://www.shacknews.com/article/122409/gme-stock-price-continues-to-rise-r-wallstreetbets-sends-open-letter-to-cnbc
[16]: https://www.wraltechwire.com/2021/01/25/video-game-phenom-gamestop-stock-is-soaring-heres-why/
[17]: https://www.9news.com.au/national/reddit-wallstreetbets-gamestop-stock-inflation-explained/f0a882cd-1d01-4c74-9895-fcbe1ffb0769
[18]: https://www.benzinga.com/money/how-to-buy-gme-stock/
[19]: https://www.dailymail.co.uk/news/article-9210323/Gamestop-shares-jump-18-premarket-trading-Reddit-fueled-volatility-continuing.html
[20]: https://9to5mac.com/2021/01/28/sell-gme-in-robinhood/
[21]: https://www.fxstreet.com/news/gamestop-gme-stock-price-and-forecast-why-is-it-moving-the-paradigm-of-a-changing-landscape-202101261211
[22]: http://www.idahoreporter.com/2021/here-is-how-gme-could-soon-be-worth-27000/
