Popular meme describes how GameStop broke the stock market. Photo courtesy of melmagazine.com
JULIAN CIRNIGLIARO | STAFF PHOTOGRAPHER | firstname.lastname@example.org
Over the past few weeks, struggling companies such as GameStop, AMC Theatres and BlackBerry have been targeted by hedge funds for their lucrative market potential. Day traders from the Reddit community r/wallstreetbets saw a high risk, high reward situation in the works, and “deep dove” their savings into the failing brands.
Explaining how hedge funds and day traders are having a tug-of-war over GameStop and other crippled companies is difficult and involves an absurd amount of financial vocabulary, so here’s an explanation using terms that have been floating around on the internet.
In the metaphor, apes are average day traders and r/wallstreetbets members, snakes are hedge funds and bananas are stocks.
Let’s say five bananas currently cost $10. One ape on the market currently has five bananas. A snake, specifically Melvin Capital, comes along and asks to borrow the bananas from the ape, but instead sells them for the aforementioned $10. The snake believes it can buy the bananas later for less, and profit off of the difference.
A group of apes notice what the snake is doing and decide to buy all the bananas on the market until the snake has no other choice than to buy from the apes in order to return what was borrowed. If the group of apes stays strong and doesn’t sell their bananas, the price will go up.
Short selling — what the snake does for profit — isn’t anything new for hedge funds. It happened with Volkswagen in 2008. This is different though: now, there’s someone fighting back. When VW was shorted, hedge funds had free reign over the stock market, but with day traders aggressively holding onto their GameStop — shortened to GME on the market — bananas, it won’t be so easy this time.
A week ago, GME stock was roughly $40. Now, it’s spiked at well over $400. Think of Jan. 29 as the day the snake was due to return the bananas, but he didn’t have any cheap ones to purchase. Moving forward into the first week of February, we could very well see a repeat of the Volkswagen situation as Melvin Capital is forced to return what they borrowed.
One of the greatest ongoing success stories from this situation is that of Keith Patrick Gill, or DFV — a shortening of u/DeepF***ingValue — who is known on r/wallstreetbets for keeping records of his GME stocks bought in 2019. DFV purchased the stock when it was valued at roughly $2. In one post, the user calculates their gain at well over $37 million as of Jan. 27. Now deific on the sub-reddit, u/DeepFuckingValue has been half-jokingly praised as a profit prophet, as seen in this tweet by @ParikPatelCFA.
There has been a lot of discussion in r/wallstreetbets regarding the hold or sale of GME stocks. DFV posted a report on his progress, and to everyone’s awe, despite a multi-million-dollar loss, he’s still holding onto his bananas. The comments have erupted with, “If he’s still in, I’m still in.”
So prolific is the bludgeoning of Melvin Capital that even Elon Musk has joined in on the fun, linking the subreddit after tweeting “Gamestonk.”
On a more serious note, Robinhood, an investment firm by which most r/wallstreetbets members operate, made buying GME stock unavailable on Jan. 28. This left day traders at a clear disadvantage to hedge funds and other corporate traders who were still able to buy and sell as they pleased. Users have called for a class action lawsuit against Robinhood for market manipulation, and their claims are not entirely unfounded. Alexandria Ocasio-Cortez tweeted she would be in favor of a hearing regarding Robinhood and other similar freezes.
What started as a humble movement to stick it to the rich has evolved into something greater than any individual in the online r/wallstreetbets community. After Robinhood’s manipulation of the market, the goal is no longer to injure. Now, it’s total annihilation with reckless abandonment for financial security.
Keith Patrick Gill, also known as DFV, is shown munching on a cigar.
What will come of the class action lawsuit, any hearings regarding market freezes, DFV’s investment, and the r/wallstreetbets community as a whole after their war with Melvin Capital is something only time will tell. Just like the stock market, everything here is constantly evolving. Also like the stock market, something is going to come crashing down.