What You Need to Know: GameStop (GME) Soaring a Second Time
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What You Need to Know: GameStop (GME) Soaring a Second Time

Will millions of newly inducted stock traders spur another massive GME short squeeze, or will it be a flash in a pan?
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The last round of GME’s short squeeze was illuminating, to say the least. The underlying rigging represented by a shady relationship between market makers and brokerages soured daily trading for many. However, even without this extra risk of institutional interception, is it wise for traders to revisit GME short squeeze 2.0?

GME Stock Surges Over 300%, For the Second Time

It appears that GameStop’s short squeeze did not die out quite yet. Instead, the period of leveling out its price was just a calm before another storm. Between February 23rd and 24th, GME’s trading volume jumped by nearly 1000%, resulting in its flatlined ~$43 to rise to $173, representing a 302% stock price spike within one day!

Image credit: TradingView

Likewise, AMC followed with a 40% rise, bringing the short squeezing team back together. The question is, what does all of this mean for potential investors? Should you jump in once again into the fray against Wall Street hedge funds?

First, you should read up on the detailed timeline of the last, much longer GME short squeeze, in which the stock reached its $483 highest price point. More importantly, remember that this is a highly volatile and risk-heavy market situation, spurred on by the Reddit army – Wallstreetbets. They describe themselves as:

“Like 4chan found a bloomberg terminal”

As the class-action lawsuit against Keith Patrick Gill—known as DFV on reddit—shows, hedge funds weren’t the only losers. Those who entered the market last time at a relatively high price point, hoping for the stock to soar even higher, ended up losing a lot of money when the stock flatlined instead.

Expectations for the Second GME Short Squeeze

According to the official WSB thread, the hope this time around is to almost double the GME stock price, at around $800. The rapid spike in price certainly indicates a more severe upward trend. As the chart above shows, the price surge was more incremental last time, doubling from $30, $60 in one-day increments, with a few notable dips.

However, there are multiple and severely unstable factors to consider:

  • The Wallstreetbets membership has grown immensely since January, from ~2.8 million to ~9.3 million today. This is a colossal increase in potential traders by 232%.
  • Does such an increase translate into a larger pool of active traders, or were the stories of retail traders losing money sufficient to lower the interest to plunge in?
  • Robinhood’s interception, among other brokerages, of GME stock trading made millions of people angry. Will this encourage or discourage people this time?
  • Is the new user-base disciplined enough to keep a position on a highly-volatile stock?

With such unquantifiable psychological factors at hand, the only way to approach GME stock trading in the second round is to view it as – social activism. With that said, those who entered the market last time at a relatively high price point, and still hold the GME stock, potentially have an opportunity to make some money.

Is a Gamma Squeeze Causing GME’s Price Spike?

Lastly, the recent GME stock price is likely attributed to a subset phenomenon of short squeeze known as a gamma squeeze. A rarely used term, brought into the public spotlight by GME, gamma squeeze refers to an increase in stock price based on investors buying options in order to hedge their trades.

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Options that were set to expire this Friday (Feb. 25), 25,000 of them, were bought today at about $50. As this instigated GME stock rise, market makers had to cover the hedging. In other words, market makers would have had to buy the shares in order to avoid the potential for a massive loss.

If this is indeed the case, it means that the rapid drop in the GME stock will be just as rapid as its climb. The idea for many of those in the Wallstreetbets community is that this presents an opportunity for those who still hold GME stock bought at lower price, but a severe risk for anyone else.

How do you view GME stock trading? As an opportunity to make money, or as a way to incur losses to the entrenched financial system? Let us know in the comments below.

Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.