The subreddit Reddit Wall Street Bets, or r/wallstreetbets, has become a phenomenon that few could have predicted. In normal times, it’s an anarchic corner of the internet where online day traders gather, and everything seems to be both a joke and deadly serious. This unique community, boasting over 4.5 million members on the social media platform Reddit, has long been known within certain financial circles for its unconventional approach to the equity markets. But recently, it exploded into mainstream consciousness, largely thanks to its role in the meteoric rise of GameStop’s stock.
A typical reddit wall street bets trade often starts with a compelling narrative, a surprisingly insightful take on the intricate workings of financial markets, and crucially, a heavy dose of self-awareness. It’s this blend that makes it so unique: is it all just for laughs, or is it a genuinely sound investment strategy? Often, it’s impossible to tell until the dust settles and the winners and losers emerge from the volatile trades initiated by this online collective.
Consider the curious case of Hertz. The car rental giant, a household name, declared bankruptcy in May 2020 as the COVID-19 pandemic crippled travel. Naturally, its stock price plummeted, hitting rock bottom. However, during June, discussions about Hertz began to surface on reddit wall street bets. Here was a well-known company, trading at a mere 59 cents a share. Wasn’t that remarkably low? Could a turnaround be possible, especially if a large number of retail investors jumped in?
And jump in they did. Initially, there were those who genuinely believed Hertz had underlying value. Then came the second wave: individuals who anticipated that enough people would believe in Hertz, thus driving up its value. Next were those drawn in purely by the excitement, the sheer fun of participating. Finally, there were those who simply noticed Hertz’s name appearing on the “most traded” lists of platforms like Robinhood, the commission-free stock trading app that is central to much of reddit wall street bets’ activity.
This surge of interest was amplified by the community’s discovery of a trading technique known as a “gamma squeeze.” Instead of directly purchasing Hertz shares, traders could buy call options – contracts allowing them to buy shares in the future at a predetermined price. If the option’s expiration date is near and the strike price significantly higher than the current stock price, these options appear almost worthless, as conventional financial wisdom suggests they’ll never become profitable. However, reddit wall street bets users realized that the option seller then has to hedge their position by buying the underlying stock, just in case the price does increase. This meant that if enough people bought these seemingly worthless options, the demand would force the stock price upwards, achieving a significant price movement with a relatively small initial investment compared to buying shares outright.
The outcome was astonishing. Hertz’s stock price exploded tenfold in just weeks, even while the company was bankrupt. When the market correction inevitably occurred – Hertz was eventually delisted in October – some traders had profited handsomely by selling at the peak, while others faced losses. But importantly, for many on reddit wall street bets, the experience itself was a thrilling ride, a form of financial entertainment.
The GameStop saga, which truly catapulted reddit wall street bets into global headlines, began in a similar fashion. Users on the subreddit noticed that the video game retailer was undervalued and recognized potential for growth that was being overlooked by Wall Street. They started buying shares, becoming vocal proponents of GameStop’s true worth. Building on the “gamma squeeze” tactic employed with Hertz, they identified another powerful strategy: the “short squeeze.” They highlighted that several hedge funds had borrowed and sold billions of dollars worth of GameStop stock, betting that its price would fall. If the price instead rose, these funds would be forced to buy back the stock at inflated prices to cover their short positions, further driving up the price – a short squeeze.
From this point, the familiar cycle repeated itself, but on a much grander scale. People invested because they believed in the fundamental argument for GameStop. Others joined the wave anticipating a further surge in buying pressure. Still more jumped in simply for the spectacle, the shared experience of being part of something unprecedented.
However, with GameStop, the “quantum joke” began to lose its humor. The sheer volume of money pouring into the company, from a vast and diverse range of investors, transformed the situation. The initial wry smiles started to fade, replaced by genuine, deeply felt emotions. One widely upvoted post on reddit wall street bets powerfully recalled the “enormous repercussions” of the 2008 financial crisis and framed the GameStop short squeeze as a form of karmic retribution against Wall Street professionals.
“You’re a firm who makes money off of exploiting a company and manipulating markets and media to your advantage,” the post addressed Melvin Capital, a prominent hedge fund that had heavily shorted GameStop. “I dumped my savings into GME [GameStop’s trading symbol], paid my rent for this month with my credit card, and dumped my rent money into more GME. This is personal for me, and millions of others. I’m making this as painful as I can for you.”
The conflict escalated when, on Thursday, Robinhood and other trading platforms, including the British firm Trading 212, restricted trading in GameStop and other stocks favored by reddit wall street bets, such as cinema chain AMC and Nokia.
Within an hour, and after 10,000 furious comments, reddit wall street bets was in an uproar. “I was done buying. Now I’m gonna switch brokers and buy more. I can’t believe how hard they’re trying to f*** the little guy,” read the top reply to the top comment, encapsulating the community’s outrage and determination.
The GameStop saga and the reddit wall street bets phenomenon raise profound questions about the future of the stock market, the power of online communities, and the dynamics between institutional finance and retail investors. While the ending remains uncertain, and many individuals are likely to face financial losses, one thing is clear: this time, they aren’t going down laughing. The movement has become about more than just making money; it’s become a symbol of defiance and a challenge to the established order of Wall Street.
