January 2021 — The Short Squeeze
GameStop, January 2021 — The Retail Trader's Seat
Step 1 of 4
It's mid-January 2021. You're an individual retail trader who's been following GameStop discussion on Reddit's r/wallstreetbets for weeks. The stock has climbed from around $20 to $40 as the community organizes around an unusual fact: more than 100% of GameStop's available shares have been sold short.
The setup being discussed isn't really about GameStop's underlying business — everyone posting about it agrees the mall-based video game retailer's fundamentals are weak. The trade is about mechanics: with short interest above 100%, sustained buying pressure could force short-sellers to buy shares to cover their positions, which pushes the price up further and can force even more covering — a mechanical feedback loop that can run far past anything the business itself justifies.