Shares in GameStop and BlackBerry skyrocketed in New York on Monday as amateur online traders continued their assault on professional investors, betting the stock was overvalued.
Gaming retailer GameStop jumped a whopping 120 percent and its stock was repeatedly halted to calm volatile trading, before falling back to trade 10 percent higher.
The outrageous earnings, with no significant company news, were based on a rally on Friday that was more than 100 percent at its peak. Shares in BlackBerry, the technology company once famous for its handsets, rose a whopping 47 percent on Monday, more than doubling its price at the start of the year.
The activity has highlighted the impact of social media and cheap trading on Wall Street in the past year, where $ 500 billion a day in deals are filtered through a network of banks and brokers and executed in microseconds.
Both companies are popular among amateur traders who share ideas and tips on the r / wallstreetbets message board on the Reddit website. Other companies, such as Palantir Technologies, the US data analysis group, have also been extensively discussed.
One Reddit user claimed he took his father’s savings and put everything into BlackBerry stock with the “you only live once” attitude. “He said” It’s either retirement on a hunt or food stamps for him “.”
Friday’s drama in GameStop stock came after short-seller Citron Research said the company’s value should be halved from $ 40 as it was “virtually in decline.” Retail enthusiasts retaliated by buying options in GME, pushing the stock above $ 65.
“All sentiment positioning indicators are focused on the institutional world,” said an investment bank analyst. How do you gauge the sentiment on Tik Tok? How do you gauge sentiment in gifs or memes? I do not know.”
Small investors can influence stock prices by purchasing large amounts of call options, which give the user the right but not the obligation to buy a stock at a fixed price later.
This usually means that wholesale brokers such as banks must buy shares in the open market to hedge against the event that the share price reaches the option’s strike price.
This hedging can have an inordinate effect on prices, especially with smaller stocks if a large percentage of the company’s stock is lent to institutional investors to make a profit by selling short.
In the first hour of Monday’s trading, more than 400,000 options contracts were purchased in GameStop, higher than the full-day trading totals for the past 50 days.
Day trader activity was fueled in part by brokers moving to commission-free trading and a sharp recovery in stock market valuations since last March’s sharp sell-off.
“As someone who started trading stocks in college in the late 1990’s, I would always remember seeing the small retail groups crushed by hedge funds and savvy short sellers,” said Edward Moya, senior market analyst at Oanda. a foreign exchange specialist, in New York.
“What happened to GameStop’s stock is a reminder of how times are changing. A new army of traders isn’t focused on valuations, but rather momentum opportunities they see from Reddit’s Wall Street Bets, YouTubers, TikTok or Robinhood.”
By law, US exchanges are required to ensure a fair and orderly trading market. The New York Stock Exchange, where GameStop is mainly listed, did not comment on the matter.
BlackBerry said in a statement that it was not aware of any material undisclosed business developments that would explain the recent rise in the market price or trading volume of its common stock.
Additional reporting by Eric Platt and Katie Martin.