GameStop Corp, a Texas-based seller of games and electronics, is in the midst of a battle between bullish retail traders who discuss trading ideas on social media and hedge funds that were positioned for GameStop’s stock to fall in value. Shares in the company, which operates thousands of retail stores, had drifted lower in price in recent years as a result of a consumers’ shift from physical stores and malls to online sales.
In recent weeks there has been a spectacular rise in the price of GameStop stock, as retail traders targeted short-selling funds who were betting on the stock price to drop. Legions of smaller traders bought GameStop shares, which pushed the game retailer’s stock substantially higher. In addition, retail investors bought call options, which gave them an inexpensive way to profit from rising stock prices. As a hedge, institutions that sell options typically purchase the underlying stock that is linked to the option. This provided another source of demand that pushed prices even higher.
Institutional investors were losing money on their positions that the stock would decline in price, and to limit the damage, they had to buy GameStop shares, pushing the price to even higher levels. In fact, GameStop shares have rocketed to more than 20 times the price where they were at the beginning of the year.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2024 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.