Gamestop: The return of the meme share

Contents

The series of curious events surrounding the Gamestop share (GME) has been given another chapter after a three-year break. GME is considered a meme stock because it is repeatedly subject to high price fluctuations due to a battle between private and institutional investors. It is less about the company's fundamentals and more about driving up the share price with "diamond hands".

Gamestop's true value is controversial in a world of digital gaming platforms such as Steam, because the retail chain mainly sells game discs in stores. The sales concept is no longer considered up-to-date.

The central figure is Keith Gill aka "Roaring Kitty" (Twitter / X) aka "DeepFuckingValue" (Reddit). He got the ball rolling in 2021: Large parts of the subreddit r/wallstreetbets started to "like the stock" just like Gill. The aim: to drive up the share price to such an extent that hedge funds had to liquidate their short positions

Against the short bets

In "short selling", hedge funds bet that the share price will fall. They sell contracts that allow the purchase of shares at a certain date and a fixed price. If the actual price on the due date is below the fixed price, the difference remains as a profit: the short seller can buy the shares that he is contractually obliged to deliver at a lower price on the market than the buyer pays. If the share price is higher, the hedge fund makes a loss because it has to sell the shares at a price below the market value. The crux of the matter is that many short positions are uncovered, meaning that the companies would first have to buy the shares if they were liquidated.

These purchases drive the price up further, making further short positions at higher prices worthless. In a chain reaction, a so-called short squeeze could take place, liquidating many short positions.

In 2021, this did not work out in the end. Gill nevertheless had to answer to a finance committee of the US House of Representatives. The price rises at the time caused enough damage to the hedge fund Melvin Capital that it went bankrupt after losing billions.

Gill did not post anything for almost three years – until May 13. On X that day, he only shared a picture of a gamer changing from a relaxed to a leaning position. The meme symbolizes that someone is serious.

After three years in the doldrums, GME shares shot up by a factor of almost 4 to 60 euros – and were only 20 percent below their all-time high on January 27, 2021. Since May 2024, price fluctuations of 50 percent and more are no longer unusual for Gamestop.

Hundreds of millions of US dollars in GME

Gill resumed his old tradition on Reddit as "DeepFuckingValue" in June and posts daily updates on his GME position. He currently owns five million shares worth around 125 million euros (at a price of 25 euros). Gill has also bought 120,000 options, which were worth a good 110 million euros in total at the last update. Gill originally started with a portfolio worth just under 50,000 euros.

Each option entitles the holder to purchase 100 shares at a price of 20 dollars (18.40 euros) until June 21. Including the option prices, Gill is betting that the GME share will be worth at least 24 euros on the specified date.

If Gill were to spend the money to exercise all the options and buy 12 million shares, he would own almost five percent of Gamestop.

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Wait and see

The big question now is how the GME share price will develop between now and June 21. The subreddit r/Superstonk is dreaming of massive increases. r/gme_meltdown, on the other hand, considers Gamestop to be worthless.

Stock shorters such as Citron Research suggest that Gill could have financial backers who represent their own interests. However, there is no evidence of this; Citron itself may be interested in creating uncertainty.

(mma)