January 28, 2021

Reddit Users Surge Struggling Stock, Taking Aim At Wall Street Short-Sellers

By Lillian Searles

A group of Reddit users have managed to surge GameStop and AMC Theatres’ share prices, putting major hedge funds in predicament.


Small traders on Reddit waged a coordinated attack on big Wall Street traders, investing in seemingly failing companies including GameStop and AMC Theatres. 


After heading for bankruptcy, GameStop saw its shares spike by more than 1,750% from the beginning of this year alone. The company’s shares were worth approximately $39 each on January 20, but by the morning of January 28, they surged nearly 10 times to roughly $469 a share.


AMC Theatres, one of the largest movie-theatre chains that took a major hit during the COVID-19 pandemic, also saw shares increase more than 600% this year.


On Thursday, financial technology company Robinhood announced it would restrict transactions for certain companies including GameStop, AMC Theatres, BlackBerry, Nokia, and more. Some people have called out the trading companies’ decision to restrict transactions, which seemingly favours the larger hedge funds over the individual traders. 


The jump came from a group of small/independent traders on Reddit. Thousands of Reddit users have been hashing out their plans and coordinating to drive up the share prices of struggling companies.


The jump in share prices has resulted in billion-dollar hedge funds losing money. Larger traders are feeling the effects because their “short selling” strategy basically failed. 


AMC CEO Adam Aron told Market Watch that the stock price surge could help the company escape bankruptcy in 2021. 


“With any kind of partial recovery of the movie-theatre industry, this will get us all the way through 2021,” Aron said. “Imminent bankruptcy is completely off the table. We believe we have the runway we need to get through this pandemic.”


The Securities and Exchange Commission put out a short statement on Wednesday, saying it was “aware of and actively monitoring” the Reddit-inspired “market volatility.” 


“Consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants,” the SEC wrote in a statement.