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Briefing Note - GameStop Short

The document outlines the events of the January 2021 GameStop short squeeze. It began when social media users on Reddit encouraged each other to buy GameStop stock to drive up the price and squeeze short sellers who had heavily bet against the company. This led GameStop's stock price to increase over 1,700% in a few weeks, costing short sellers over $5 billion. The short squeeze was influenced by Ryan Cohen joining GameStop's board, the high short interest in the stock, a small amount of shares available to trade, and the social media campaign. Online brokerages later restricted trading in GameStop, causing its price to fall sharply.

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Josh Taylor
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© © All Rights Reserved
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28K views

Briefing Note - GameStop Short

The document outlines the events of the January 2021 GameStop short squeeze. It began when social media users on Reddit encouraged each other to buy GameStop stock to drive up the price and squeeze short sellers who had heavily bet against the company. This led GameStop's stock price to increase over 1,700% in a few weeks, costing short sellers over $5 billion. The short squeeze was influenced by Ryan Cohen joining GameStop's board, the high short interest in the stock, a small amount of shares available to trade, and the social media campaign. Online brokerages later restricted trading in GameStop, causing its price to fall sharply.

Uploaded by

Josh Taylor
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Event timeline: GameStop short squeeze


29 January 2021

This note outlines the events of the January 2021 GamesStop “short squeeze”.

Background
1. GameStop (GME) is an American brick and mortar video game retailer. Institutional
investors had heavily shorted GME, believing that it would not survive the economic
impacts of COVID-19.

2. From 11 January to 27 January, GME’s share price rose by 1,727% as a result of a mass
social media short squeeze campaign. Costs to short sellers currently exceed $5 billion.

3. The short squeeze was influenced by 4 key factors:

a. Positive changes in GME’s strategy and management due to the engagement


of Ryan Cohen (a billionaire e-commerce venture capitalist);

b. GME’s high short to float ratio – 71.2 million shorts against a float of 69.75 million
shares;

c. GME’s high proportion of insider investors resulting in a small amount of tradeable


stock - only 23 million tradeable shares; and

d. Users of r/WallStreetBets posting about the opportunity for a short squeeze and
acquiring GME shares en masse.

GameStop share price ($USD)


$350
$300
$250
$200
$150
$100
$50
$0
Aug-2020 Sep-2020 Oct-2020 Nov-2020 Dec-2020 Jan-2021

Event timeline
September 2019  GME reports a 14.3% drop in quarterly sales and commits to
Share Price: act “with a sense of urgency” to address failing areas of its
~$16.00 USD business
 A WallStreetBets user (DFV) posts about buying $50,000 worth
of GME call options and is mocked by other users

August 2020  GME’s share price reaches an all-time low


~$5.00 USD  Ryan Cohen starts acquiring GME shares

OFFICIAL: Sensitive
21 September  GME’s share price rises as Ryan Cohen reveals that he has
2020 been in contact with GME management and plans to
$8.75 USD transform GME into an Amazon competitor.

8 October 2020  GME’s share price increases following the announcement of a


$13.49 USD strategic digital partnership with Microsoft

November 2020  Ryan Cohen starts an activist investors campaign, publicly


~$12.00 USD questioning the ability of GME management to implement a
new e-commerce strategy

December 2020  Ryan Cohen now owns approximately 13% of GME shares
~$17.00 USD  GME falls short of Wall Street estimates for quarterly revenue
11 January 2021  Ryan Cohen acquires 3 seats on the GME board by investor
$19.94 USD demand
 GME states that it will focus on its transition into e-commerce
 Institutional investors acquire more shorts to defend their
position (including Melvin Capital and Citron).
 GME shorts reach approximately 71 million. GME’s float is 69.75
million shares, with only 23 million stocks being actively traded.

13 January 2021  Investors from Reddit rush into GME, praising Cohen’s arrival
$31.40 USD and calling on each other to squeeze short sellers.
 GME’s share price rise continues
21 January 2021  Andrew Left, managing partner of Citron, issues a negative
$43.03 USD analysis of GME on social media, claiming the price will fall to
$20 USD.
 The anti-shorter movement gains support on Reddit
 r/WallStreetBets members express glee at ‘trolling’ Wall Street
25 January 2021  Melvin Capital announces that it has received a $2.8billion
$76.79 USD USD bail out

26 January 2021  Melvin Capital close their shorting position at an undisclosed


$147.98 USD loss.

27 January 2021  Citron close their shorting position “at a loss of 100%”
$347.51 USD  Elon Musk tweets about the GME short squeeze, causing prices
to surge another 157%
 DFV, who has been supporting the short squeeze movement
on WallStreetBets, claims their investment is now worth $47
million USD.

28 January 2021  r/WallStreetBets is briefly privatised as moderators attempt to


$193.60 USD cope with new traffic to the site. Over 5 million people are now
members of the forum.
 Moderators of the Australian forum, r/ASX_Bets, state that they
will ban any user attempting to organise any type of ‘market
play’
 Robinhood and other online brokerages restrict trading in
GME, causing the share price to lose half its value
 A class action suit is filed against Robinhood

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