At the behest of social media, heavily shorted stocks saw aggressive surges at the opening bell on Wednesday. GameStop, Revlon, Bed Bath & Beyond, Eastman Kodak, ViacomCBS, and several other shares are being affected by a bubbling rebellion via the “r/wallstreetbets,” a forum of nearly 3 million day traders that exchange information on Reddit’s platform.
Retail investors have worked together to push up the share prices of these companies. Among those seeing volatile trading is movie theater chain AMC Entertainment. Trading was shut down several times within one hour of the frenzy as shares quadrupled reaching as much as 310% upon opening. AMC’s increase has been radical, with the theater chain experiencing a 26% increase at the start of the week and now documenting a 650% increase for the month, according to CNBC.
Analysts determined that day traders are betting on short selling, a process in which individual investors borrow shares at a certain price and sell them immediately with the speculation that the shares will lower in value and create a profit for the borrower as they pay back their lenders.
Reddit users’ method of manufacturing a rapid surge in share price or short squeezing has coerced other traders who were betting on a decline in price to buy the higher priced stock in order to avoid even more losses. In turn, the stock’s price continues to surge and hedge funds scramble to recoup from their losses by decreasing shorts across the board.
Wall Street’s response to the heavy activity was to create trading restrictions and halt activity with the intent to establish more levity. The last time this type of activity from day traders occurred was during the “dot.com” bubble in the 1990s when people were both optimistic and afraid of what the future may hold.
Unbeknownst to many Gen Zers, the transition from the years 1999 to 2000 inspired another frenzy of speculation and trading. The COVID-19 pandemic is showing signs of a similar response with average joe trades and even hedge fund experts leading charges that show dismal for the system and its lack of transparency.
