The Battle of GameStop

IRL, the video game retailer has no profits. But its shares became part of a showdown between online stock pumpers and short sellers

- Brandon Kochkodin

Short sellers—investors who make money betting a stock will fall—get called a lot of things by bulls. Bloodsuckers. Parasites. Other words not fit to print. Now, in the vortex engulfing the shares of GameStop Corp., they have a new name: the establishment.

They’ve been cast in the role with relish by their chatroom usurpers, the tens of thousands of day traders whose belief in a left-for-dead retailer has become a self-fulfilling prophecy, lifting the stock $1,745%, to $348, in just the first 17 trading days of 2021. GameStop has been a romp for the crowd that gathers in Reddit’s WallStreetBets online forum. For those wagering on a decline, it’s been a catastrophe.

GameStop, which isn’t expected to turn a profit before 2023, was a cash register for bearish traders before this year. Hedge funds had been winning for so long, they overlooked the tinderbox they were creating should sentiment turn. Now it has, violently. Short sellers bet against stocks by borrowing shares they don’t own and then selling them. If a stock’s price rises sharply, some may have to “cover” their bets by buying shares, which helps push the price still higher—an event known as a short squeeze.