GameStop Short Squeeze: A Wild Ride in the Stock Market

The Short Squeeze Saga

In January 2021, a short squeeze of the stock of American video game retailer GameStop (GME) sent shockwaves through the stock market. A short squeeze occurs when a stock's price rises rapidly, forcing short sellers to buy back the stock they have borrowed to close their short positions, driving the price even higher.

Buying Frenzy on Reddit

The GameStop short squeeze was fueled by members of the Reddit community r/WallStreetBets, who rallied together to buy GME shares. The stock, which had been heavily shorted by hedge funds, soared from around $20 per share to over $500 in a matter of weeks. The rapid surge in price forced short sellers to close their positions by buying back GME shares, further driving up the stock's value.

Pandemic-Era Meme Stocks

The GameStop episode quickly spread beyond the retailer to other stocks that had also been targeted by short-sellers. Meme stocks, such as AMC Entertainment and Bed Bath & Beyond, also experienced significant gains as retail investors piled into the market. The pandemic-induced stay-at-home orders and increased trading activity on online platforms contributed to the surge in meme stock prices.