GameStop has been experiencing challenges given its “Old Economy” business model — operating video game stores typically located within shopping malls, writes Kristina Hooper, chief global market strategist at Invesco, in her blog.
But for more than a year, a small but devoted group of investors bought GameStop stock and call options and talked it up on social media sites such as Reddit. This caused its fan base — and retail investor base — to grow. Excitement also built around other stocks currently facing headwinds, such as AMC, Blackberry, and others.
Then, these investors noticed that many hedge funds had shorted GameStop’s stock — meaning that their positions would profit if the stock price fell. This is a common tactic in the hedge fund world for turning profits; however, it can backfire if the stock price goes up. Small investors spread the word over social media, bought up GameStop stock, and pushed the stock price higher in order to create a “s
