If you thought the short squeeze saga was over… think again. Shares of GameStop were up 100% after hours Wednesday after suddenly exploding before the close, finishing up 103.94% at the closing bell.
And as you guys know, GameStop went bonkers a couple of weeks ago, propped up by the subreddit WallStreetBets and then social media as more and more traders joined the fray. The same thing also happened with AMC and a few other stocks recently, propelled by the Reddit crowd.
After nearly two weeks of craziness that saw GameStop go from $18 or so bucks a share above $400 at times, things started to settle down somewhat… though still trading more than double its normal range.
And then today, out of nowhere — BOOM!
Shares were in the $44 to $49 range up until about 2:40 p.m. EST. Things quickly escalated and before you knew it, GME again went parabolic — straight up.
As I filmed this video, after-hours trading of shares of GameStop (NYSE: GME) were moving frantically, rising as much as 45% to 100%… and everywhere in between.
To refresh your memory on a short squeeze… You have a lot of people who are short the stock, which means they’ve sold shares in the open market without owning them. In order to take profits or cut losses, they’ll eventually have to buy the stock back.
And that can create what is called a short squeeze. If shares of a stock start moving higher, folks who shorted it are losing money. At some point, they have to stop the bleeding and buy shares to “cover” their shorts. Which only creates more demand for the stock, sending shares even higher.
So then you have two things that are happening…
And together, these are two very powerful forces that drive stocks higher, possibly even sending them parabolic like GameStop after hours, and a few other times recently.
Now the question is: Do you think this next time will be different?
Check out my short video and I’ll break down the exact scenarios we’re likely to see after today’s action on GameStop after hours. You can also follow me on Twitter, and over at Forbes, where I’m a regular contributor.