In what is presented as an attack on hedge funds by the little people, groups of small investors have used discussions on reddit’s r/wallstreetbets and Discord servers to target stocks that hedge funds have gone short on, driving up the prices to force the funds to cover their losses. When they do so, by purchasing shares at market price to make up for their having earlier sold shares they didn’t own (short-selling), those required purchases also help to drive the price up still further.
As an example, GameStop (GME), which was trading below $50 a share a week ago, skyrocketed to close over $100 on Jan. 26 and then opened in the $300 range on Wednesday, Jan. 27, exceeding $350 by lunch, maintaining that level through closing. Melvin Capital was forced to close out its positions on Tuesday, losing billions. The stock of AMC movie theaters, which was hovering at around $2.50 last week, jumped to $5 by Tuesday, opened on Wednesday at $16, and closed on Wednesday at $20.
