The over 642% surge in the shares of GameStop since January 12 has come as a shock to many Wall Street veterans.
The ongoing bullish rally in the shares of the American video game, consumer electronics, and gaming merchandise retailer, GameStop Corp (NYSE: GME) has taken a new turn in the past 24 hours. As reported by CNBC, Social Capital’s Chamath Palihapitiya and Tesla Inc (NASDAQ: TSLA) Chief Executive Officer Elon Musk have also paid attention to this enormous growth in their tweets.
Contributing to the ongoing duel between a certain group of short-sellers who are bearish on the stock and another group of retail investors organized in a Reddit chat room dubbed “WallStreetBets” with two million subscribers, Elon Musk tweeted “Gamestonk!!” drawing reference to the Reddit page. Palihapitiya also revealed in a tweet that he bought the GameStop call options with the anticipation of an increment in the shares in the near future. The tweets from these Wall Street juggernauts have contributed to boosting the shares performance of GME as seen today.
To top the wild upswing in the shares of GameStop, the stocks closed 92.71% on Tuesday to $147.98. The pre-market rally has been more impressive with an additional 81.11% surge to $268.00. At the time of writing, the stock is 51% up. The company now has a valuation of $10.32 billion for the first time since it was established in 1984.
Analysts believe that the more the sellers short the stock, the more the bulls buy up more of the shares.
“The retail order flow in the options are supercharging the short squeeze,” CC Lagator of Options AI said. “The call buyers essentially use the market makers’ hedges as leverage. As the stocks go higher, more stock is bought to cover for increasing short deltas. It’s a market inefficiency and it eventually ends when those that have sold the calls are over-hedged for a stock no longer rising, and then need to actually sell stock to stay delta neutral.”
Michael Burry Warns against GameStop Shares Meteoric Blast
The over 642% surge in the shares of GameStop since January 12 has come as a shock to some Wall Street veterans including Michael Burry who has maintained a bullish disposition on GME since 2019. Per a Bloomberg report, GME’s meteoric rise in recent days is “unnatural, insane, and dangerous.” Burry wrote:
“If I put $GME on your radar, and you did well, I’m genuinely happy for you. However, what is going on now – there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.”
Just like Burry, many see the pumped up valuation of GME as a subtle form of unacceptable market manipulation that may end in a catastrophic burst. Burry confirmed in an email shared with Bloomberg that he is “neither long nor short” on GameStop even though his firm Scion Asset Management has a 3.3% stake in the video game retailer.