A tale older than time, a masked victor to one and hooded vigilante to others. Robin Hood, a fantasy character who fights justice in the name of the poor at the expense of the rich. The outlaw who protects the voiceless and the nameless. This past week two stocks have shocked the market with short squeezes from hidden investors. GameStop and AMC Entertainment have been met with hardships during the endless nightmare that is COVID-19. Business has been rough, to say the least. The streaming giants have dominated lockdown, while many theaters close their doors for the last time. As GameStop and AMC headed for bankruptcy, an unlikely bunch of guardians swooped in.
AMC stock leveled under five dollars a stock for weeks to months, seeing no light at the end. When the market opened on Jan. 26, all their misfortune seemed to change, the stock price opened at $5.09. Jan. 27 proved even more historic, with close to a 400% increase in the stock price, opening at $20.34. How did such a dormant business attract so much interest? While Dow Jones slipped 0.1%, Nasdaq fell 0.9% and S&P 500 futures slid 0.3% and Apple, Tesla and Facebook dipped slightly this past week, GameStop and AMC have tripled and quadrupled their price respectively.
A group of Reddit users chose to go head-to-head against the hedge funds in an effort to short squeeze GameStop and AMC to pump the prices of their stock. The volume at which Reddit users were buying GameStop and AMC stock inadvertently caused a short squeeze of these stocks. As these independent users borrowed stocks from brokers at Melvin Captial, the price of the stocks inflated rapidly, while the Reddit users were able to sell the stock back at much higher prices. After realizing their enormous loss, Melvin Capital closed all short stock options for GameStop, while Robinhood and TD Ameritrade quickly following in suit.
Short squeezes are known for their gamble and slightly dirty tactics, bordering an ethical boundary. The Reddit users that partook in this scramble revealed the benefits and detriments of such a tactic that is employed by hedge funds on occasion. Morals and ethics aside, AMC mustered enough funds to avert bankruptcy for a while longer.
After a wild week of trick plays and hail marys, the Robinhood antics seem to be coming to a close. Following days of outwitting hedge funds and pumping money into two beloved childhood businesses, the band of outlaws accomplished what they set out to achieve. Gathering enough individuals to hoodwink major hedge funds and finance moguls, the vigilantes found the limits to their power. At the end of all the pandemonium, it is evident that change and moves can always be played by those with a goal. The Robin Hoods of the stock market set their mind to the most untouchable of goals and saved two businesses as a direct result. One voice, one idea with enough traction can prove monumental in its endeavors.
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