What is short sell? History has been made. Online retail investors along with a Reddit forum Wall Street Bets have proven that the Internet can provide access to tools for making intelligent analysis of the stock market.
Upon analysis of GameStop, retail investors shared the news that GameStop was being shorted over 100%. Individual investors began buying GameStop and the price began to rise. If many of these terms are new to you, let me share a bit of information that may help with a bit of clarity.
Short Interest
A short interest is the belief that the price of a stock will fall. Negative reports or news about a company can add to the decline in stock price. These are the normal business tactics of being a short seller.
What is a short sell?
If a trader or Hedge Funds thinks that a stock is overvalued or that the company is failing they will short the stock. In order to short sell a stock, traders borrow shares on margin and sell them with the intent of buying them back by a specific date at a lower price. This is called a short position.
What is a short squeeze?
A short squeeze occurs if the stock price goes up rapidly instead of falling, forcing the hedge fund to buy back the shares at a higher price resulting in a loss. In order to close a short position you must buy back the shares that were borrowed in order to return the stock.
If other short sellers are attempting to close their positions during the same time, now everyone is buying and the price of the shares continues to rise, that’s called a short squeeze
If a company is heavily shorted and the price rises sharply the stock can continue to go higher and higher infinitely. This happened in the case of GameStop. Retail investors and a Reddit forum called Wall Street Bets found that GameStop was being shorted up to 138% of the float.
What is float?
Floating stock is the number of shares available for trading minus the closely held and restricted shares of a company. In the case of a short sell, the hedge funds bought shares to close out their positions retail investors continued to purchase GameStop.
Many people believe that GameStop is a foolish investment, gamers thought differently. For the retail investors, many of which are gamers saw an opportunity. GameStop is the only physical retail store dedicated to gamers. Where people can go and purchase new and used games.
GameStop has a new CEO George Sherman and is currently reinventing stores to be premiere gaming hubs where gamers can come together and compete for live experiences.
Also, disks are still in demand. Gaming consoles like Sony and Microsoft sell consoles with disk drive that can be purchased at GameStop.
Risk of a Short Sell
When an investor purchases a stock, the most they can lose is 100% of the price of the investment. In a short sell, it is possible to lose more than 100% of the initial investment. https://www.reuters.com/article/us-retail-trading-usa-congress-idUSKBN2AA262
Only time can tell how this will all end. Short selling is risky. In the case of GameStop the retail investors are on the winning end. As always we are not financial advisors, we are financial friends. Please consult professional advice before investing.