Shares Fall Below $100 After Surging Last Week
After making headlines with an unprecedented surge last week that sent shockwaves through Wall Street, the remarkable rise of GameStop seems to be coming to a halt. From reaching extraordinary highs of almost $500 per share last week, GameStop’s stock price now hovers around $75 per share at the time of this report, marking a significant drop of over 80% in value.
Recent data shows a decline in the stock’s short interest, indicating the number of borrowed and held shares. The group of individuals from the WallStreetBets Subreddit, now exceeding 8 million members due to increased attention, may collectively face substantial losses running into billions of dollars.
“These situations can persist longer than anticipated, but when they unravel, it can happen swiftly,” commented Baird investment strategist Ross Mayfield. “In cases of pure speculation and gambling, someone usually ends up bearing the losses.”
While the stocks may not reach the anticipated “moon” levels as touted by many Redditors, experts and advocates suggest that this incident has brought to light several critical issues within the financial system.
The recent GameStop trading frenzy has brought attention to the practice of payment for order flow and might prompt congressional scrutiny. https://t.co/TMIZOwCQG7
— The Wall Street Journal (@WSJ) February 4, 2021
“The flaws were present even before GameStop, but the GameStop saga and similar meme stocks have laid bare the extent of these flaws. The reason they’re flawed is that fundamentals are losing significance by the day,” highlighted Carson Block, founder of Muddy Water Research, in an interview with Yahoo Finance.
“Questions like ‘What’s the float? What are the stock inflows from passive sources? What’s the gamma exposure in the outstanding options?’ These aren’t the questions markets are traditionally designed to address, which should be focused on identifying companies that will utilize capital to create value. Once we’ve crossed that threshold, it’s valid to question the purpose of these markets,” Carson added.
