From there, the investors can ask (again, as an example) for 100 shares to be lent at US$10 (~RM40) per share. Once obtained, the investor then sells those shares at a price of US$1000 (~RM4053) and provides the broker with a date of when they’ll buy back and return the shares.
How the investor profits off the shorting process now hinge on the value of a stock in question taking a nosedive; if the stock value were to drop to, say US$1 (~RM4.05) in value, the investor can simply buy back those 100 stocks for just US$100 (~RM405), while retaining the profit of US$900 (~RM3650) it has made.
The long and short of it: so long as GameStop’s value continued to drop, short-sellers would profit.
Unfortunately, the investors didn’t factor in a group of Redditors belonging to a sub-Reddit called “WallStreetBets” homing in on their plans. Months before GameStop’s sudden and steep rally in value, the group began buying up as much of GameStop’s share as they could. When word of Wall Street’s investors’ plan got out, they purchased enough of GameStop’s shares to increase the demand for its stock and that, in turn, increased the value of said stock.
The end result was the upward spiral and boom that saw GameStop’s share value rally as much as 1700%, peaking at US$480 (~RM1945) per share and closing at U$193.60 (~RM784). As for the short sellers, you probably already have a picture as to what happened; the event brought the total amount loss by short-sellers this month to a eye-gouging US$70 billion (~RM283 billion), while hedge funds like Melvin Capital required a US$2.75 billion (~RM11.15 billion) cash injection just to stay afloat.
Unsurprisingly, the rally of independent and small-time investors of WallStreetBets also sparked a local group to band together, creating a subreddit called “bursabets”, it’s name having been inspired by the original subreddit.
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