The past week certainly has involved a lot of stock market news with the Reddit-driven GameStop activity. We’ll cover a bit of that today and then talk about some fun ideas of activities to do in the snow.
GameStop made headlines this week as a group of people on a Reddit subgroup called WallStreetBets bought stocks to drive the price up to foil short sellers. To understand what’s happening, it’s important to know what a short is. Basically, a short is when someone borrows a stock from a broker and sells it immediately at its current price, hoping that the price will drop so that they can repurchase it at a lower price. Then they would return the stock to the broker and keep the difference. If, instead, the stock price goes up, the trader still has to give the stock back to the broker, but it will cost a lot more to buy it back. Because stock prices can rise indefinitely, the potential losses as a short seller are unlimited.
In the case of GameStop, a few weeks ago, a Redditor on r/wallstreetbets saw that a hedge fund had taken a large number of short trades against GameStop and convinced other people on the thread to buy as much of the stock as possible. The price went up, and the hedge funds started to lose billions of dollars–ultimately surpassing the $13.1B that the hedge fund was worth. The hedge fund had to buy back all of the stock at a much higher price, which further drove the price up–this is called a short squeeze. Now the hedge fund has declared bankruptcy.
At the end of the day, though, the GameStop stock won’t be worth much, and so everyone who has invested and is still holding those stocks will also lose money. It’s worth noting that the whole issue doesn’t affect anyone who doesn’t own stock in GameStop, but it’s been a great way for more people to learn about the stock market and how short selling works (or doesn’t, in this case).
If you’ve had more time than usual to pay attention to the GameStop news, it’s probably because of the massive snow that hit the east coast this week. New York City is dealing with a one-day record snowfall, with 17.2 inches blanketing the city by Tuesday morning. In the Maryland area, we’ve had a comparably lighter storm, but the 5-7” in this area are enough to delay even virtual schools for many people and keep many folks at home.
Whatever you get up to, we hope you have fun and stay warm and safe.
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