There are no legal casinos in New York City. Although many stock traders turn to Wall Street to try their luck against the market as opposed to the house. Recent trading on stocks such as GameStop and AMC Entertainment have yielded a small fortune. Ultimately, the Wall Street Bets Reddit group had a big impact?
How Do The GameStop Traders Upend Wall Street Hedge Funds?
News reports from the New York Stock Exchange highlighted these recent trades. A group of stock traders on Reddit turned the tables on the hedge funds. The hedge fund managers decided to take short-sale positions on select stocks. However, the Wall Street Bets Reddit group did the opposite to actually drive up the price of the targeted stocks.
GameStop was the primary target from each side of this play.
This is a land-based video game retailer. The company’s stock price had a share price of $39.12 earlier in January. By the time the month drew to a close, the price shot up to $347.51. The gain in one week alone was $200 a share.
AMC Entertainment was also on the target list. That company runs a chain of land-based movie theaters that have been heavily impacted by the ongoing health crisis. Shares started out at a low of $4.96. The price more than tripled in one week to $15.70.
Elon Musk And US Rep. Alexandria Ocasio-Cortez Have A Few Things To Say
As one of the richest persons in the world, Elon Musk was connected to these share gains. He got involved by siding with the online investors against the hedge fund managers.
US Rep. Alexandria Ocasio-Cortez likened the overall situation to gamblers playing casino games on the Las Vegas Strip. More than a few concerned parties looked to the government to intervene.
Ms. Ocasio-Cortez went on to release the following tweet on Twitter:
Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino
— Alexandria Ocasio-Cortez (@AOC) January 27, 2021
One of the biggest winners in the GameStock rally was Chamath Palihapitiya.
The famous venture capitalist was also a former executive at Facebook. He is now one of the co-owners of the NBA’s Golden State Warriors.
The net gain of $500,000 through the trades was then donated to the Barstool Fund. This was created by Barstool Sports founder Dave Portnoy. The main purpose of this fund is to support small businesses impacted by COVID-19.
The concept of selling short can be difficult to grasp for the average investor. Basically, a hedge fund bets on the price of a stock going down in value.
In the case of GameStock, the short sale was based on adverse company sales.
The concept revolves around borrowing money to buy the stock and then selling it. As the stock price falls, you only have to pay on the current value. You do not pay back the value of when that stock was actually purchased.
The bottom line is that hedge fund investors make money on other people’s business misfortunes.
The Reddit group of investors caught wind of the move against GameStop and organized to drive up the price. This caused more than a bit of misfortune for participating hedge funds.