The Whole GameStop Situation: Explained

Описание: Reddit vs Wall Street - I explain in simple terms the short squeeze, GameStop, the entire week's events including brokers' restricting trades, and what YOU may want to consider doing as a retail investor.

Special thanks to Andrew for my long position in GME and the Finviz Stock Screener (In Video): https://finviz.com/screener.ashx?v=15...

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Timestamps:
0:00 - Start Here
1:13 - What is a Short Squeeze?
4:10 - Reddit Enters the Chat...
6:04 - The Run Up
6:57 - Thursday's Happenings
10:09 - Friday's Events
11:13 - What Should You Consider?

To understand what a short squeeze is, we need to first explain what shorting a stock means.

Shorting is when you bet a stock is going to go down, resulting in profit for you.

The way that works is that you borrow the stock - yes, this is possible, you can borrow a stock from a firm, sell it on the open market at the current price, and then buy it back at a later time.

These people that are shorting are hoping that the stock falls in price.

Let me give you an example of shorting:

Let's say you have a stock, let's call it stock XYZ trading at $10 per share. You borrow 1 share of it, immediately sell it, and you have $10 in cash. But you now owe that 1 share of stock XYZ back to that brokerage.

If the stock goes to $5, you can then buy 1 share of it on the open market for $5, return the share to where you borrowed it from, and thus, you profit the difference of $5.

Now what happens if that stock price goes up? If it goes up to say, $17 - you have to buy that stock at $17, but since you only got $10 when you borrowed it, you effectively lost $7.

Now imagine that stock goes to $500, and you only got $10 when you borrowed it, you're out $490 per share. Your losses are theoretically infinite, since the price of the stock can keep shooting up.

So what shorters often do is what's called cover their position, or they buy the share as it's going up in order to limit their losses.

Now imagine this happened, but times like, tens of millions of shares.

You can see where the hedge funds start to get nervous because now all of a sudden they have to keep buying back shares to cover their positions - which creates a snowball effect.

This in turn, is bad for themselves because now if they're buying the shares up, they're creating more demand than actual shares available, so the price just continues to go up and up and up, and this cycle continues.

So that's essentially the short squeeze play that's happening. First, traders identified that GameStop had 138% of its shares sold short. Which means that more shares of it were shorted than actually available out there on the market.

In simple terms, some big investors out there, identified that they wanted to bet on GameStop stock going down in order to profit big, so they shorted it.

And they shorted more shares than there were actually available. The reason they can do this comes down to borrowing. Insititutions can lend people shares, and sometimes the same shares get borrowed and sold twice.

Basically, the shorts aka hedge funds, were expecting GameStop to go bankrupt and that they'd never have to return their shares - profiting huge.


▶️ My name is Humphrey Yang, I've built multiple businesses and am passionate about Personal Finance. If you're trying to build a solid foundation of financial literacy, learn to invest, or become financially free - then I'm here for you! This channel cover topics like getting out of debt, managing money, building credit, multiple income sources, passive income, etc.

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