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Why GameStop Stock Skyrocketed Today

By Joe Tenebruso - Jan 25, 2021 at 12:10PM

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An epic short squeeze is hammering the bears.

What happened

Shares of GameStop (GME -4.08%) continued their frenzied ascent on Monday. As of 11:55 a.m. EST, the video game retailer's stock price was up by 50% after rising as much as 145% earlier in the day.

So what

GameStop's share price is now up roughly fivefold so far in 2021. The torrid climb began on Jan. 11 after the company announced a 309% surge in holiday e-commerce sales. 

That same day, GameStop also said Chewy founder and former CEO Ryan Cohen would be joining its board of directors. Cohen is one of GameStop's largest shareholders, and he's expected to help strengthen the company's e-commerce and technological capabilities. 

A rising stock chart with a bull battling a bear in the middle.

GameStop bulls are battling the bears -- and winning. Image source: Getty Images.

Now what

Those announcements appear to have ignited a massive short squeeze. Many investors had been betting against the struggling retailer by shorting its stock, which would have allowed them to profit if GameStop's stock price declined. Yet as its price has soared in recent days, those short-sellers have suffered brutal losses. And to close their positions and stem their bleeding, short-sellers must buy GameStop stock -- purchases that may be further accelerating its gains.

The bulls should note, however, that short squeezes don't last forever. Once vulnerable short-sellers exit their positions and opportunistic traders take profits, GameStop's stock price could plunge. In fact, given that its price has already fallen from a high of $159.18 earlier Monday to roughly $95 at midday, this dynamic may already be occurring.

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