How Redditors took down a multi-billion dollar hedge-fund betting against GameStop and made millions in the process

GameStop's stock prices have started rocketing after Redditors stepped in to save the "dying biz."

So here's the situation. Gamestop (GME) = a dying biz. circling the drain. Who goes to a store to buy games? It's basically a pokemon card dealership at this point. Plus with covid, malls are dead. So some Hedge Funds are shorting the stock, betting it would go down.

— Shaan Puri (@ShaanVP) January 26, 2021

GameStop is an American retail brand that specializes in video games, consumer electronics, and gaming merchandise. With more than 5,500 retail outlets worldwide, GameStop is one of the most popular gaming retailers.

However, since the outbreak of the global pandemic, the company has suffered significant losses. So much so that speculations regarding the inevitable end of GameStop started rising.

However, in what is arguably the most stunning scenario in the stock market, a Reddit community has managed to boost GameStop's $30 stock-price to $140 within a week.

The r/wallstreetbets Reddit community is currently planning on how to escalate the situation further.

Planning threads on the r/wallstreetbets subreddit

Here's a rundown of the entire situation and how a bunch of Redditors are reviving GameStop, even if only for a while.

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Redditors revive GameStop

According to reports posted by Shaan Puri, an angel investor, one specific multi-billion dollar hedge fund known as Melvin Capital Management had been "accruing a big short position in GameStop."

This hedge fund reportedly had a $55+ million short against GameStop.

Shaan Puri also put forward a definition of "shorting" in simple terms for everyone to understand.

Melvin had a $55M+ short against GME.. If you're not familiar with shorting - read this simple explanation using apes and snakes and bananas from the subreddit. Teachers, take note: pic.twitter.com/IEtFVeqlPo

— Shaan Puri (@ShaanVP) January 26, 2021

Apparently, Redditors noticed the overloaded short position in this case and started buying their own stocks against Melvin Capital Management's short.

This resulted in the hedge fund finding themselves without the borrowed shares. When they attempted to purchase these shares from the Redditors, they refused to sell and kept demanding higher prices.

Although GameStop did not have anything to do with the entire scenario, it is the American retail chain benefiting from this feud between Redditors and Melvin Capital Management.

According to Shaan Puri's reports, the hedge fund has lost over $2 billion in two weeks.

Melvin lost $2B+ in like 2 weeks, and just had to get bailed out by 2 other funds just to cover it's losses from the shorts. It's not quite George Soros "Breaking the Bank of England" - but it's close. The yolo traders of reddit just broke a multi-billion dollar hedge fund

— Shaan Puri (@ShaanVP) January 26, 2021

This feud has resulted in a situation where GameStop's stocks were traded more in volume than Tesla, Apple, Amazon, or Microsoft. This has resulted in multiple members of the community earning a substantial amount from daily tradings.

#GAMESTOP was the #most #trade #equity with $21.85Bn in volume, more than #TESLA , #APPLE #AMAZON or #Microsoft #GME rose as high as $260, up 76% from the last close of $147.98. That followed Tuesday’s 93% surge, which meant GameStop has risen more than eightfold this month. pic.twitter.com/SgFoKMXkAD

— David Simon Elkoubi (@Davidelkoubi) January 27, 2021

congratulations to the rando new millionaires from this pic.twitter.com/UwgzjkKAIi

— Shaan Puri (@ShaanVP) January 26, 2021

Live Update $GME... never to late to join the ship, we're still recruiting! #GameStop pic.twitter.com/5TZ3hw8C5h

— diarchtct ☃️ (@diarchtct) January 27, 2021

After the massive surge in stock trading, GameStop has indeed found hope for an otherwise "dying biz." Additionally, the company's situation can trigger a rise for similar brands that have been suffering for a while.