GameStop is leaping greater than 100% even with hedge funds protecting brief bets, and the rally overview is getting extra intense
GameStop’s shares rose again on Wednesday, continuing the stock’s wild swings when several high profile short sellers said they had pulled out of their positions.
The name was trading at around $ 337 per share when it was momentarily halted just after 1 p.m. ET. That represents an increase of nearly 128% from Tuesday’s close and a market cap of around $ 23 billion. The stock traded on premarket at up to $ 380 per share.
The most recent surge came when some of GameStop’s well-known short sellers, including Melvin Capital and Citron, announced they had filled most or all of their positions.
The stock lost some of its premarket gains after the short sellers made their announcements, but the stock rallied to new highs just before the market opened.
GameStop’s almost vertical surge over the past week has occurred as retailers, many of whom have documented their moves on the social media website Reddit, topped up on stock and call options. The rising stock price has contributed to a stock squeeze that forces short and option traders to buy stocks of a rising stock to cover their positions, creating a feedback loop that drives the stock even higher.
Short selling is a strategy in which investors borrow shares of a stock to sell at a certain price, with the expectation that the market value will drop below that level when it is time to pay off the borrowed shares.
The name appeared to be getting a boost in expanded trading on Tuesday after Tesla CEO Elon Musk tweeted the link to the Reddit board where much of the discussion took place.
The video game retailer, which had a market cap of less than $ 4 billion late last week, was the most traded stock in the market on Tuesday, according to Deutsche Bank strategist Jim Reid.
TD Ameritrade announced on Wednesday lunchtime that certain transactions with GameStop and AMC Entertainment have been restricted “in the interests of reducing the risk to our company and our customers”.
GameStop’s rapid surge has drawn comparisons to speculative trading during the tech bubble in the late 1990s and prompted many Wall Street veterans to warn investors about the potential for substantial losses.
Hedge fund manager Michael Burry, who held 1.7 million shares at the end of September, said in a now-deleted tweet the surge was “unnatural, crazy and dangerous”. Burry told Bloomberg News that he is not currently long or short in the stock.
William Galvin, Massachusetts’ top securities regulator, told Barron’s that GameStop trading could be “systemically wrong”.
Bank of America raised its target price on the stock to just $ 10 per share on Wednesday, saying in a notice to clients that the increased stock price could support GameStop’s turnaround plans but it poses a risk to investors.
“While it is difficult to know how much very high short interest and retail ownership … could continue to put pressure on stocks, we believe fundamentals will once again affect valuation,” the statement said.
The Securities and Exchange Commission declined to comment on CNBC.
– CNBC’s Michael Bloom contributed to this story.
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