Within a week, GameStop has become the center of the financial world and the hottest money-maker of 2021 thus far. Gamestop makes history by having over 138% float shares sold short making it the most shorted stock in the U.S. Stock Market (more shares are shorted than actually available). In case you are unfamiliar with the company, GameStop is a mall retail gaming shop that sells videogames, consoles, etc., and throughout the pandemic, and was struggling financially. Investors noticed this and wanted to profit off of their downfall. Now, to understand what happened this week, you must understand what it means to “short a stock” and the term “short squeeze”.

When you short a stock you borrow that stock from someone else at a fixed price, sell it, and buy it back once the price falls. For instance, if someone sells GME (GameStop) at $20 and the stock falls to $5 their short profit is $15. However, with short-selling, there is an infinite risk because there is no limit on how high a stock price can rise. Suppose GME went to $300, the short-seller who bought the stock for $20 has to buy it back at that price and loses $280 per share. This demonstrates a short squeeze, which is when the stock rises significantly requiring those who bet it would fall to purchase it to prevent even larger losses.

Reddit user and trader Keith Gill started buying into GameStop in 2019 when it was trading at $4 a share. He believed in the stock and shared his results on GME every month. Nine months ago Keith stated on Reddit that “the business is easily worth $700m, but could be worth up to $1.5b… Plus there’s now an opportunity for a short squeeze of some sort.” The community that he was making these posts on was WallStreetBets. WallStreetBets is a community where thousands of Reddit users make risky plays on stocks and share their gains and losses. In the summer, the GME stock was $4 and increased to a value of $16 in November of 2020. As Keith was sharing his results, and others took notice of his gains, traders continued purchasing the stock encouraging it to go up knowing that on the other end of the short squeeze were wealthy hedge funds. For instance, Marvin Capital is a hedge fund that lost 53% by betting against GameStop in January.

On January 11th GameStop closed at $19.94 and Keith was making a profit of over $3.1 million on his initial bet. January 22 GME was at $65.01, and Keith was making up to 8 figures. On January 27th GME closes at $347.51 leaving Keith with over $50 million. On Thursday, January 28th GME swung from a high of over $460 per share to a low of $120 per share.

As of Friday, January 29th, headlines reveal that SEC will begin to review broker restrictions on GameStop and AMC. Additionally, Robinhood had to raise $1 billion from existing investors to meet surging cash demands, this is because the clearinghouses that process the trades asked Robinhood to have more cash on hand. The GameStop stock share price ended at $325. According to FinViz, the percentage of shares that are still short for GME is 121.98% meaning that there are still more shorts than shares available.

The online brokerage app known as Robinhood is “restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD, and $NOK.” The account Motherboard on social media app Twitter states that “more than half of all Robinhood users own at least some of GameStop stock. They are now unable to freely trade it; the app is only allowing users to close out their positions.” Similar restrictions were placed by TD Ameritrade and Charles Schwab.

Now, investors are left to wonder if the squeeze has already happened and decide their next move.