TAMPA, Fla. — Stock prices of companies that weren’t seeing much traction of late, started to soar on Wednesday. GameStop, AMC, iRobot, Bed Bath & Beyond, Tanger Factory Outlet Centers, and even Tootsie Roll’s stocks increased out of nowhere.
Working behind the scene is a large group of people who pay attention to the Wall Street Bets Reddit channel.
Members of the group placed their bets against financial institutions, mostly hedge funds, through commission-free trading apps like Robinhood and TD Ameritrade.
Industry observers considered the move the largest wealth transfer from Wall Street to Main Street. Brock Pierce, a venture capitalist, compared the recent shakeup to Occupy Wall Street.
“Right now, there's a great disparity in this country and economic divide between the haves and the have nots,” Pierce said in a Zoom interview with 10 Tampa Bay.
“There's a lot of resentment building up. And it is a lot of it like the 99 percent versus the 1 percent and it’s similar to the Occupy Wall Street movement.”
The Reddit community looked at GameStop’s stock and thought the company was undervalued. They also spotted flaws in some of the hedge fund's investment strategies.
The Redditors made a move to save GameStop by buying up stocks and then holding them. This tactic is called a short squeeze, which drives up the price.
“It's a supply and demand problem where these Reddit investors are buying GameStop and AMC hand over fist,” explained financial analyst Matthew Frankel.
“Then these hedge funds have to close out their short positions and buy even more. And there's just not enough shares to buy, so it drives the price up.”
Frankel explained GameStop had more shares sold short than there were shares that exist to trade.
“That's a pretty big flaw in the overall dynamic of the market. That shouldn't be allowed to happen. That’s really why you're seeing GameStop get the biggest effect out of this.”
“They're definitely waking up these sleeping stocks.”
Since the big market fiasco, commission-free stock trading apps, including Robinhood and TD Ameritrade stopped users from trading on stocks that were part of the shakeup.
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