Reddit's GameStop Stock Craze Explained

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Wall Street has been watching GameStop in awe as a band of Reddit-obsessed retail investors managed to push the stock up 1,500% in two weeks, squeezing out short selling hedge funds. 

A wave of at-home traders found each other on the red-hot "wallstreetbets" Reddit chat room, whose members have ballooned to over 6 million. By motivating each other to keep piling into shares and call options, they coordinated a monstrous short squeeze in the brick and mortar video game retailer. 

“You combine the power of technology, which allows you through Reddit postings to magnify your individual impact, with some use of leverage and very targeted bets, they can have a significant influence, particularly on areas of vulnerability because of the short positions,” Paulsen said.

Many enthusiastic Reddit users have been posting screenshots of their brokerage accounts, some of which touting astronomical returns north of 1,000% in a handful of days. These passionate investors often call out short sellers in the chat room in colorful language and unpleasant internet memes.

“This is gaining cult-like status,” said Quincy Krosby, chief market strategist at Prudential Financial. “It is a pack of traders and the pack is gaining momentum. The retail crowd is not just taking over the shorts and it’s taking over the headlines.”

The intense speculative behavior among retail investors is unnerving many on Wall Street as mounting losses by hedge funds could spill over to other areas of the market. Some also believe this buying frenzy could be an ominous sign for a market at record highs.