12/19/2023 0 Comments Bubble explode gamestop![]() Last August, the investor Ryan Cohen, who founded the online pet food merchant Chewy and sold it for a handsome profit, started buying GameStop shares. You have a choice between giving up - covering the short and taking the loss - or keep pouring more collateral into a losing position in the hope that things will finally turn your way.īack to GameStop. And if the price keeps rising, your broker will demand more collateral in the form of real money. With short selling, if you’re wrong, there’s no predetermined limit to how much you can lose if the price keeps rising. When you buy a stock, your risk is that you could lose the entire purchase price - but no more. ![]() Your profit would be the difference between the original sale price and the closing purchase price, minus any interest paid on the borrowed asset.īut what if you’re wrong, and the price rises? Then you’re in trouble. The hope is that the price will fall, and you can buy the shares - cover the short, in the jargon - at a lower price. And you also have to keep some collateral on deposit with your broker as an assurance you’re good for the money. As with any loan, you have to pay interest on the borrowed asset. To accomplish this, you have to borrow the stock from somebody who does own it. But to make that bet, you have to sell something you don’t already own, which is not normal behavior. A short sale is a bet that a stock (or any other speculative asset, like bonds or gold) is going to decline in price. To answer that requires explaining the concept of short selling, which most civilians find nearly incomprehensible. It was up nearly tenfold in less than a week. At the close of trading on Tuesday, it was a mere $ 148. As I’m writing this on the afternoon of Wednesday, January 27, its stock is trading at $ 339 a share. It was losing money, sales had been shrinking for years, and the stock was trading for around $ 4 a share. Last summer, the video game retailer was seen as a fading brick-and-mortar operation. Who knew GameStop would itself become such a game?
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