Gamestop was the original memestock, and the story really represents an underlying rift in American capitalism.
Gamestop is a video game retailer based out of Dallas, Texas. They’re popular with the younger crowd as the buy and sell used video games, making the hobby more affordable for young people. But physical media has given way to streaming as internet connections have allowed for greater convenience. Blockbuster is a casualty of such a situation, and Gamestop was thought to be on the same trajectory.
This led to a massive short position build from Wall Street hedge funds, and it was to a gross level that saw more than 100% of the stocks’ outstanding float shorted (this is possible because shorted shares count twice in the shares outstanding). As the stock began to trade in the single digits and as the heavy institutional short position only continued to increase, it became apparent that this was a vulture picking the carcass situation, with a company that employed more than 10,000 people.
This became news with Michael Burry, of the Big Short fame, took notice and published on the topic in an investor newsletter. He noted the upcoming generation’s game consoles would retain physical media, keeping Gamestop’s place in the market as somewhat safe, for now. And given the massive short position, the stock was ripe for a squeeze.
This came to fruition in a very big way in early 2021, led by a crowd of reddit traders calling themselves ‘apes.’