GameStop, a once fledgling American retailer of video game, consumer electronics, and gaming merchandise has been the epicenter of one of the biggest financial markets phenomenons in the 21st century.
The company is the world's largest video game retailer, operating 5509 retail stores throughout USA, Canada, Australia, New Zealand, and Europe. It has declined in recent years due to the shift of video game sales to online storefronts and failed investments in smartphone retail. In addition, the effect of the pandemic has resulted in steady losses. All these factors have contributed to the setting up of one greatest stock short squeezes in financial markets.
Looking to capitalize on GameStop's negative situation, powerful hedge-funds proceeded to short the stock with the common understanding that it won't have physical customers due to the pandemic. This sparked a new frenzy from the Reddit group: Wall Street Bets who rallied all users to buy the stock to counter the short positions of the hedge funds. This became a movement for the retail investor with many entering the trading foray for the first time. The collective power of the group resulted in driving the stock price to a pre-market price of over $500 on January 28th. There were many posts where retail investors showed their astronomical gains of their investments.
As retail investors drove the stock price higher with the determination to hold, hedge-funds such as Melville Capital incurred losses in the billions and had to borrow money to close out their positions. This also paved the way to manipulation in the Reddit group with some posts on switching the 'short squeeze play' from GameStop to Silver - the commodity. One firm recently analyzed over 30,000 posts in the Reddit group wallstreetbets and came to the alarming result that over 97% of the posts were manufactured by bots.
Although its not certain what information the bots are spreading, it clearly shows the level of manipulation happening in social media and how it can have such an impact on financial markets.
Stay tuned for part 2 of this saga that goes into specific details on sentiment analysis and the future of social media crawling as a reliable data point for SaaS and PaaS companies.
References:
https://en.wikipedia.org/wiki/GameStop_short_squeeze
https://twitter.com/EpsilonTheory/status/1355526361570541572
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