It doesn't necessarily take a bunch of people to make the price move up, but it does take a lot of money, enough to capture most of the floating shares of stock. And in particular these folks banded together to use call options to amplify their money (and risk) as they purchased stock to drive the price up.
The only thing new is that rather than a few dozen wealthy people coordinating behind closed doors to use a ton of money to cause the short squeeze, it was a ton of small time investors coordinating in public, plus a bunch of others hopping on board when they saw what was going on.
Shorts have finite payoff for infinite risk. If you buy into shorts when the interest is above 100%, you _immediately_ open the door for this type of counter position to become rational.
Is it really a problem that a bunch of people on a message board collectively decided to act on a rational position?
EDIT: This is the story: https://www.cnbc.com/video/2021/01/27/melvin-capital-sells-o...
It's full of plausible deniability phrases like "from what I understand" and it's very much a game of telephone. They could easily say "when I meant we were out of the stock, I meant that we had covered some of our positions" or similar.
I can't find a non-hearsay source anywhere, neither written nor in the form of a recorded interview.
I’ve yet to find an actual statement from Melvin.
Perhaps I'm naïve, but I think to lie about such a thing would pretty clearly fall afoul of the law?
A single false statement or two, said to a reporter as a confidential source, would be much more difficult to prosecute. The reporter might not willingly give up their source, and the company could deny everything, fire the person who "inaccurately represented our position", and claim the party acted of their own volition. Modest fine, at best.
Most of what WSB is doing is market manipulation but from what I've read it isn't something the SEC will go after in court as fraud is not clearly involved.
This is, unfortunately, going to be a situation where the sophisticated investors win out, and the people they cajoled into buying stocks will be left holding the bag. Gamestop could not reorganize quickly enough to assure investors that they actually have the ability to capitalize on this influx of investment, especially not with a historically terrible business performance.
The above has happened, but it is rare. Not letting your broker deal with holding the stock for you is a big hassle.
They took on unbounded risk and have no leverage if all of the stockholders refuse to sell for anything less.
The stock is less a company than a contract that can be purchased that says the other party has to pay you any price you set (assuming the stockholders are able to hold until the shorts must close their position).
Can the short sellers stay solvent long enough to wait for the price to drop? Short squeezes can last for weeks. The answer is already no, at least some of them cannot, e.g. Melvin Capital
- huge amounts of short positions at like $5 (months and months ago)
- some people disagreed and went long
- good luck #1 for game stop: some big investors (also months ago)
- good luck #2: activist investor joins board, overhaul seems likely (this month)
- shorts refuse to close position, stock at $15-20 (early this month)
- at this point, short squeeze is apparently likely and the momentum begins.
- 2 weeks later, the escalation catches attention outside wallstreetbets
A lot of long term background that seems key to how things have unfolded in that case.
It's only recently that its caught fire, as you note.
...along with the entire internet. This triggers triggers more margin calls, more gains, and more attention.
It's a vicious cycle and given the liquidity conditions in the market there was enough jet fuel for take off. Now add more media attention, more people finding out about WSB, and you have the mother of all short squeezes.
This only became truly coordinated once the media got involved and was exacerbated more by the brokerage firms shutdown buying.
And to give an idea of just how big this part has blown up: Over the past 6 days, WSB went from 2 million subscribers to 5.5 million.
The problem with GME is it was shorted something like 140% of the available floating shares. If the shorts hadn't shorted the stock so excessively, we wouldn't be talking about GME today, it's what left them exposed to so much risk. The blame lies squarely with the shorts, or the lack of regulations preventing absurdity like 140% short interest.