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GameStop Short Squeeze

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The GameStop short squeeze of early 2021 was one of the most dramatic financial events in recent history, pitting retail investors against Wall Street hedge funds and exposing deep tensions in market structures.

Background[edit | edit source]

GameStop’s struggles and short interest[edit | edit source]

GameStop, a brick-and-mortar video game retailer, had been struggling due to competition from digital game sales and the COVID-19 pandemic’s impact on in-person shopping. By 2020, institutional investors heavily shorted the stock, betting its price would fall further. At its peak, 140% of GameStop’s public float was sold short, meaning some shares were borrowed and shorted multiple times.[1]

The role of r/WallStreetBets and retail investors[edit | edit source]

The subreddit, r/WallStreetBets (WSB), a forum known for high-risk trading discussions, became the epicenter of a coordinated retail investor movement. Users, led by figures like Keith Gill, argued that GameStop was undervalued and that a short squeeze could be triggered by mass buying.[2]

Gill had invested heavily in GameStop as early as 2019, sharing his bullish thesis online. By January 2021, his $53,000 investment had ballooned to $48 million as the stock surged.[3]

Short squeeze mechanism[edit | edit source]

A short squeeze occurs when a heavily shorted stock rises in price, forcing short sellers to buy shares to cover their positions, further driving up the price.

Retail investors bought shares and call options en masse.

Hedge funds like Melvin Capital (which had a large short position) were forced to buy back shares at soaring prices, amplifying the rally.[1][4]

At its peak on January 28, 2021, GameStop’s stock hit $483 intraday, up from $17.25 at the start of the month.[5]

Short squeeze[edit | edit source]

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Impartial and complete description of the events, including actions taken by the company, and the timeline of the incident coming to the public's attention.

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On January 28, trading platforms like Robinhood restricted purchases of GameStop and other "meme stocks" (e.g., AMC, BlackBerry), allowing only sales. The decision spark public outrage with accusations that:

  • Robinhood was protecting hedge funds at the expense of retail traders.
  • The move was influenced by Citadel Securities, a major market maker and Robinhood’s order-flow partner, which also had ties to Melvin Capital.[6]
  • Robinhood claimed the restrictions were due to clearinghouse deposit requirements, not collusion, but the incident damaged its reputation and led to multiple lawsuits and congressional hearings.[6][7]

[Company]'s response[edit | edit source]

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Lawsuit[edit | edit source]

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Claims

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Rebuttal

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Outcome

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Consumer response[edit | edit source]

Summary and key issues of prevailing sentiment from the consumers and commentators that can be documented via articles, emails to support, reviews and forum posts.

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References[edit | edit source]

  1. ↑ 1.0 1.1 Dziak, Mark (2024). "GameStop short squeeze". EBSCO.com.
  2. ↑ Stewart, Emily (September 29, 2023). "Dumb Money and what actually happened with GameStop, explained". Vox.com.
  3. ↑ Winter, Velvet (October 27, 2023). "Here's the story behind Dumb Money and how a group of Redditors made billions on the stock market during the pandemic". abc.net.au.
  4. ↑ Kwansoo, Kim; Tom Lee, Sang-Yong; Kauffman, Robert (May 23, 2023). "Social informedness and investor sentiment in the GameStop short squeeze". nih.gov.
  5. ↑ Niu, Max (June 21, 2025). "The GameStop Short Squeeze: Retail Investors, Market Mechanics, and the Decline of a Legacy Business Model". research-archive.org.
  6. ↑ 6.0 6.1 DeChesare, Brian (February 2021). "The GameStop Short Squeeze: Why Almost Everyone is Wrong About It". mergersandinquisitions.com.
  7. ↑ Malz, Allan (2021). "The GameStop Episode: What Happened and What Does It Mean?". Cato.org.


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