Stock Market Madness 

Photo by: Daniel Tenreiro

Photo by: Daniel Tenreiro

Jariel Sierra and Shawn Rodeffer

So, this topic, it’s kind of crazy. It’s crazy, in that it can be the survival or the death of a company, and in that it truly shows the power of big business.  Within the last few weeks, there has been a lot of drama surrounding the stock market and game stop. The abrupt rise in stocks has shown us not only the power of the people, but the power of the internet, and believe it or, even the power of good, when all those things come together in modern culture. 

The definitions you need to know: 

Stock Market – A place where shares of publicly listed companies are traded; where regular activities of buying, selling, and issuance of shares of publicly held companies take place.

Options – Purchased through brokerage houses, contracts give the bearer the right, but not the obligation, to either buy or sell an amount of some underlying asset at a predetermined price at or before the contract expires. Contracts are often used for speculative purposes such as wagering on the direction of a stock.

Reddit A social news and entertainment website where users submit content in the form of either a link or text post. Other users then vote the submission “up” or “down”, which is used to rank the post and determine its position on the site’s pages and front page.

Stocks- Game stop, or GME, is a company that specializes in selling new and used physical video games, consoles, and other pop culture items and collectibles, at their 5,500 brick and mortar stores worldwide. We’ll use this company as an example since this is the stock that started the frenzy.

Short-sale- A tactic used by investors to bet on a company’s stocks that they believe will decline. The idea is that an investor “borrows shares” of a certain company’s stock from their broker, sells the shares, and then buys it back at a lower price.

How this began- GameStop, like many companies that have brick-and-mortar locations, struggled during the coronavirus pandemic. Local shutdown orders meant less foot traffic into their stores and led to the company having to close several stores and lay off staff during the pandemic. Combined with the advent and popularity of buying digital game downloads, which brought in $12 billion in December, GameStop was in deep trouble. 

Bring this all together, and what do you get: The frenzy surrounding recent GameStop stock skyrocketing in value. 

For the last few weeks, GameStop has been front and center in all financial headlines. Thanks to the power of the internet and users of Reddit, there is now an actual term called “meme-stocks” and this company who, only a short time ago had stock valued around $2, has recently seen spikes in value up to $483 per share. 

GameStop is a video game company with over 5,000 stores in ten countries. However, rather than walking into an actual store to purchase video games, most systems allow you to buy them straight from the device, or they can be purchased online.  Since the pandemic, we’ve been stuck at home most of the time, making it much easier to click “purchase now,” instead of running out to the store. Combine this with the fact that some new consoles offer online-only games, and there’s beginning to be no real need for GameStop in the future. It’s gotten so bad that they’ve even closed nearly 800 stores since 2019. 

Combining COVID with an already declining business, and nothing good can come of it all, right? Maybe not. Some hardcore gamers appreciate the beauty of having a physical game with its plastic packaging in hand. It’s kinda like those that still love a hard copy book when there are options like paperback and even digital. There’s just something about having your love and passion in your hands to hold and appreciate. And again, for hardcore gamers (those that play more hours a day than should be allowed) there’s a video game collecting community. They can play it, finish it, and share about it (enter YouTube, but that’s a topic for another story).  These are the guys helping to fuel the love for GME. Currently, digital versions of games sell for the same price as the physical copy. So, the little stock that possibly could, continues to have the power of greed behind it. Hardcore gamers want to show other online gaming companies that either they lower the digital game prices, or GameStop isn’t going anywhere. 

So today, GME’s price sits around $75 per share, which is still huge compared to the $2 price it saw only weeks ago. And with all this market craziness, there’s come another unexpected good. ABS News has reported that a 20-year-old from Cornell University who dabbles in stocks and played a little in this GME game, made an ironic purchase and donated it to pay it forward. Hunter Kahn “cashed out $30,000 of the GameStop stock he bought at $30 to $80 a share last month and used part of the proceeds to buy a bunch of Nintendo Switch Lite handheld consoles and video games from GameStop stores, of course, and donated them to patients at Children’s Minnesota hospital.”  

Due to the extreme market volatility in the symbols AMC, GME, and KOSS, their clearing firm will no longer be able to support clearance on these symbols. As a result, Weibull is forced to sell all transactions in these symbols to liquidate only. And the move to restrict new trades of these stocks and others by online brokerage firms comes after a coordinated surge of market buying of these stocks by users on Reddit and other social media platforms, as part of an effort to try to send a message against big hedge funds on wall street. With the ease and popularity of trading stocks online, the GameStop fiasco highlights the influence of social media and could change how wall street and big companies approach certain stocks. “It’s amazing to use social media for individual traders in both stocks and different trading options,” said David Saito-Chung, deputy market editor at investor’s business daily, according to spectrum news. 

 

Stocks- Game stop, or GME, is a company that specializes in selling new and used physical video games, consoles, and other pop culture items and collectibles, at their 5,500 brick and mortar stores worldwide. We’ll use this company as an example since this is the stock that started the frenzy.

Short-sale- A tactic used by investors to bet on a company’s stocks that they believe will decline. The idea is that an investor “borrows shares” of a certain company’s stock from their broker, sells the shares, and then buys it back at a lower price.

How this began- GameStop, like many companies that have brick-and-mortar locations, struggled during the coronavirus pandemic. Local shutdown orders meant less foot traffic into their stores and led to the company having to close several stores and lay off staff during the pandemic. Combined with the advent and popularity of buying digital game downloads, which brought in $12 billion in December, GameStop was in deep trouble. 

 

Sources: https://www.reuters.com/article/us-retail-trading-breakingviews/breakingviews-breakdown-gamestop-a-financial-markets-whodunnit-idUSKBN29X2SV

https://www.investopedia.com/options-basics-tutorial-4583012#:~:text=Options%20are%20contracts%20that%20give,or%20before%20the%20contract%20expires.&text=A%20popular%20example%20would%20be,market%20to%20limit%20downside%20losses.

https://abcnews.go.com/US/20-year-renegade-gamestop-investor-donates-part-windfall/story?id=75633085

https://www.nytimes.com/live/2021/02/04/business/stock-market-today

https://www.baynews9.com/fl/tampa