Elon Musk’s ‘Gamestonk’ tweet sends GameStop soaring another 130%; stock skyrocketed about 700% in just 2 weeks

Yesterday, we wrote about how a flailing video game chain GameStop went from losing $470 million a year ago to becoming a $7.05 billion company by market cap. At the time of writing (about 3:PM EST), GameStop was trading at $116.20. Then at 4:08 PM EST, Elon Musk added fuel to the fire with a simple tweet: “Gamestonk!!”

Musk’s tweet, which links to the subreddit chat room called r/WallStreetBets, sends Gamestop soaring to $147. Then immediately after the market closed, the stock surged even more during the after-hours trading to $240. GameStop stock hits $385 as Reddit army crushes Wall Street hedge funds while short-sellers Melvin and Citron lost more than $5 billion

Then this morning, Reuters is reporting that shares of videogame retailer GameStop have surged another 130% on Wednesday in pre-market trading as Reddit army continued to pile into the stock. You may be wondering why all of a sudden we are interested in this story. We all love the story of the underdog defeating the giant.

The story of GameStop is like the battle between David and Goliath. Here, the 2 million Reddit army represents David while the Wall Street hedge funds and other investment bigwigs represent Goliath. The GameStop story also shows the power of the internet in bringing individual investors together to crush Wall Street hedge funds. We expect this trend to continue.

Meanwhile, the spikes in GameStop stocks have sent institutional short-sellers scrambling to cover losing bets, while raising questions about potential regulatory clampdowns. CNBC also reported this morning that Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss. CNBC could not confirm the amount of losses the firm took on the short position. Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up its finances.

According to Reuters, the top securities regulator in Massachusetts thinks trading in GameStop stock, which has jumped to $148 a share from $19.95 since Jan. 12, suggests there is something “systemically wrong” with the options trading surrounding the stock, Barron’s reported on Tuesday.

Institutional short-sellers are losing billions of dollars. Per Reuters, short-sellers in GameStop are down $5 billion on a mark-to-market, net-of-financing basis in 2021, which included $876 million of losses early Tuesday, according to analytics firm S3 Partners.

“These are not normal times and while the (Reddit) r/wallstreetbets thing is fascinating to watch, I can’t help but think that this is unlikely to end well for someone,” Deutsche Bank strategist Jim Reid said.

But some hedge funds have refused to budge from their bearish bets, with FIS’ Analytics data showing investors had piled on $2.2 billion in bearish bets on GameStop – a whopping 20% of its market capitalization.

Meanwhile, in Europe, shares of Evotec and Varta jumped on chatter that Melvin Capital Management was being forced to unwind its short positions to cover losses on its other bearish bets, including GameStop.