Forgive my noobishness but why is it bad for certain hedge funds for these shares to increase in price so much?
I understand the concept of hedge funds and the logic behind this situation of inflating the share price to some extent but I don't know how it hurts 'the man'.
Gamestop was at $25-40, they opened massive short positions to the tune of 148% the float as they thought it was the next blockbuster. This was not a normal short position and instead of betting that the share price would go down it had the effect of forcing the share price down to <$4. To put that in perspective, since then gamestop has done massive stock buybacks so at $4 the value of the company was only $250m. This is a company who's retail business is worth atleast $3m especially with the new console cycle and their online sales is worth ~$1b and growing at 300% a year.
People saw it was undervalued and bought stock in 2019/early 2020 and the price went back upto $20. Ryan Cohen came in and bought up 13% of the company and is trying to turn it around which forced the price up to $40 a share.
At this point many of the shorts (hedge funds) were underwater but instead of sell which would be a short squeeze and drive prices up (but they could get out) doubled down on their shorts. As everyone in the world can see this people are buying GME because the shorts have to close their positions at some point and they're paying upto 83% interest now on their short positions. Eventually if the stock price keeps going up they will get margin called by their brokers and be forced to close their positions.
Furthermore many of the shorts sold their positions at a massive loss around the $150 mark and lost billions. The people who bought those positions at $150 and now are over 200% underwater as well and this will continue provided the longs keep up pressure until eventually the shorts are forced to sell. This is all creating a gamma squeeze whereby there's so many call options lthat matured last friday and this friday where the Market makers have to have share's to give these people it's forcing the price up more. So atm we're still in a gamma squeeze and the short squeeze hasn't really happened yet.
What happens next? Depends, if the longs continue to hold their shares and not sell eventually the shorts will have to sell and we'll see a short squeeze, this has gone on so long with more shorts getting in it could massively eclipse the squeeze of VW in 2008. On the other hand if all the longs decide to take profits, or the share price drops a bit and people panic then the price will tank back to $40-80 and the shorts that bought in at $150 will make bank.
This is all theory and not investment advice etc etc
Shorting on Barc which then went 50p to 390p is kinda related. Judging momentum like this froth is pretty hard to do but options delivery or expiry is Friday right and Im not familiar enough to say how that works out for GME. Longs have to unwind just like shorts to a long term balance
