Shares for GameStop and AMC Theatres have soared over the last few days, thanks in large part to Reddit's popular "Meme Stock Market" subreddit.
The r/Wallstreetbets subreddit is where all of the action is taking place, as the community has come together to inflate the shares for GameStop and AMC Theatres. Though GameStop is a brick-and-mortar video game retail company and AMC Theatres is a chain of movie theaters, the one thing they have in common is both companies have been on the brink of bankruptcy. However, this is what has led many in the business to take up short-selling trading strategies against the two, which means speculating on the continued decline of GameStop and AMC stock. But since Redditors have inflated the price of GameStop and AMC stocks, the short-sellers are losing money.
The losses for GameStop short-sellers have hit $5 billion so far in 2021, according to financial-analytics firm S3 Partners. As for AMC, its shares have increased to almost 300 percent once the market opened on Jan. 27. Just as AMC stock was reaching these historic heights, AMC Entertainment announced that it has garnered $713 million in fresh financing and has effectively avoided bankruptcy. CEO Adam Aron believes "that with any kind of semblance of recovery, just, a partial recovery, we raised enough money to make it through all of 2021."
"We are still seeing a short squeeze on existing older shorts, with these more value-based short sellers trimming or closing their positions due to large mark-to-market losses," S3's Ihor Dusaniwsky said. "But, for every short position that is closed and stock borrow returned, we are seeing extremely strong demand from new short sellers looking to initiate new short positions."
"If GME's stock price remains at these levels or continues to rise, both value and momentum shorts will be squeezed out of their positions, and GME's stock price will get the added boost of short buy-to-covers standing shoulder to shoulder with long buyers in driving up GME's stock price," Dusaniwsky added.
Source: THR, Business Insider, S3 Partners