GameStop shares plunge sharply
GameStop shares have plunged sharply after financial services company app Robinhood restricted trading.
The stock price of GameStop, a gaming chain in the US, had surged 1700 per cent in recent weeks after a Reddit group backed it strongly.
US hedge funds like Melvin Capital - had bet against GameStop by short-selling its shares - meaning it stood to gain if the price went down and lose if it went up.
By pushing up the price of companies like GameStop, members of Reddit group WallStreetBets put the "short squeeze" on hedge funds, which saw them lose more than $5 billion.
Melvin Capital admitted defeat yesterday, with boss Gabe Plotkin telling CNBC that his fund had closed its position in GameStop on Tuesday - accepting huge losses. It reportedly required a huge bailout to stay afloat.
But in the latest twist, GameStop shares lost nearly half of their value in early trading.
The losses came as trading platform Robinhood began restricting investors from buying GameStop and other volatile stocks.
Robinhood cited "recent volatility" in a statement on its website, sparking fury online.
RELATED: Aussies caught up in GameStop frenzy
The tumult began when financial advice YouTuber Roaring Kitty encouraged daredevil amateur traders, many associated with the Reddit forum r/WallStreetBets, to pump money into ebbing companies like brick-and-mortar video game retailer GameStop, in a shot across the bow at large hedge funds shorting the businesses.
By Thursday afternoon, GameStop was valued around (US)$237 a share - after closing Wednesday around (US)$345.
Amid the market turmoil, the stock jumped violently Thursday from a peak of (US)$482.85 to a valley of (US)$112.25, a wild swing of (US)$370.60 in a matter of hours.
Other companies which were heavily backed included AMC movie theatres, BlackBerry, Nokia, swimwear line Naked Brand Group, headphone manufacturer Koss and Bed, Bath & Beyond.
But early Thursday, Robinhood pumped the brakes, freezing its users' ability to buy stocks in GameStop and the other companies and eating into the gains.
The Robinhood shutdown quickly provoked the ire of the amateur investors, and a class-action lawsuit was brought against the platform by users.
It also caught made for strange bedfellows, as voices ranging from conservative Texas Senator Ted Cruz to self-described democratic socialist Rep. Alexandria Ocasio-Cortez blasted the restriction.
"This is unacceptable," tweeted Ocasio-Cortez, a Democrat representing parts of Queens and The Bronx. "We now need to know more about RobinhoodApp's decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit."
She went on to say that, as a member of the House of Representatives' Financial Services Committee, she would support a hearing into the selective suspension of trading.
"Inquiries into freezes should not be limited solely to Robinhood," she wrote. "This is a serious matter. Committee investigators should examine any retail services freezing stock purchases in the course of potential investigations - especially those allowing sales, but freezing purchases."
I’ll be hopping on Twitch at 8:30pm tonight to discuss today’s developments with GameStop and retail trading. 👾 Might have a guest or two join - we’ll see.— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
See you there!
The Republican Cruz - typically at the opposite end of the political spectrum from Ocasio-Cortez - retweeted her thread, writing, "Fully agree."
Dave Portnoy, the outspoken founder of sports and pop culture site Barstool Sports, also weighed in.
"So Robinhood is saying they are protecting their users from over leveraging and getting burned," wrote Portnoy. "But somehow it's okay when hedgefunds literally do the same exact thing. Nobody had a problem then until the hedge funds lost. Now speculating is a huge issue. #frauds"
Additionally chiming in with advice for GameStop investors was rapper Ja Rule.
"Yo this is a f**ing CRIME what Robinhood is doing," he wrote. "DO NOT SELL!!! HOLD THE LINE… WTF"
Donald Trump Jr also erupted, writing on Twitter: "Any Republican in Washington DC worth a damn should be calling for an immediate investigation into Robinhood and Citadel."
Despite the protests, the move succeeded in edging the market back towards the status quo, as prices of shares in all the companies plunged back down toward earth by mid-day.
However, the chaos still put a sizeable dent into large traders' short-selling numbers.
Such traders were, as of Thursday, staring down the barrel of estimated losses of $70.87 billion on their short positions in American companies so far this year, according to data analytics firm Ortex, with a fair chunk of that hit tied to the GameStop rush.
Among those hit was Gabe Plotkin, the head of Melvin Capital Management and a former protege of Wall Street wizard-turned-Mets' owner Steve Cohen.
Plotkin's portfolio was reportedly down some 30 per cent as of Tuesday, leaving him in need of a $2.75 billion cash infusion from hedge fund hotshot Ken Griffin, of Citadel.
The topsy-turvy trading has rankled others within the Wall Street establishment, including Andrew Left, the founder of Citron Research and a renowned short-selling guru.
He warned investors not to buy into the hype on the company.
His advice seemed to have the opposite effect, further propelling investments into the company by defiant Wall Street outsiders.
- with New York Post
Originally published as GameStop shares plunge sharply