Counter-
Hegemonic
Finance: The
Gamestop Short
Squeeze
Dr. Usman W. Chohan
28 January, 2021
Abstract
The events that surrounded the short squeeze of
Keywords: short squeeze, gamestop, reddit,
various downtrodden stocks such as Gamestop wall street, financial democratization
(GME) allude to a counter-hegemonic financial
effort, with small-scale investors pooling in to
sabotage the short-positions of large Wall Street
players such as hedge funds. This paper frames
these events in terms of public reprisal for the
2008 Global Financial Crisis (GFC) and public
contempt for insular financial private interest. The
discussion suggests that such people-power
initiatives, abetted by powerful elite
sympathizers, have a powerful signalling effect
on the public in terms of highlighting fundamental
vulnerabilities in an extractive financial system.
Electronic copy available at: https://ssrn.com/abstract=3775127
Counter-hegemonic Finance: increased the stock price almost 900 times
from its record low, hitting a high of $500 per
The Gamestop Short Squeeze
share on January 28, 2021, which did succeed
in inflicting hemorrhaging losses for short
sellers.
This paper briefly examines the underlying
The events that surrounded surrounding the
counter-hegemonic element , along other
Gamestop (ticker: GME) short squeeze had
salient factors, that colored the brief tide of
mesmerized audiences around the world, both
the Gamestop short squeeze.
in lay-circles as well as in the specialized
financial markets. At the root of the issue
was an attempt by regular, small-scale
investors (mostly members of subreddit
r/Wallstreetbets) pooling their financial
energies to sabotage the short positions
held by powerful hedge funds in
downtrodden stocks. While such a
counter-coup would normally not create
such ripples in the market in and of itself, it
was the portrayal of such a move, as
evident in the subreddit chats, that there
was a David-versus-Goliath struggle of a
counter-hegemonic natures underway. This
galvanized many small-size investors to join
ranks and thwart (or attain the sense of The American public seethed with the wounds
thwarting) large Wall Street giants, at least for of several types, including the misery of death
a moment. and impoverishment during the Covid-19
pandemic. It also continued to reel, below the
The specific mechanism of subterfuge used is surface, from the tremors of the 2008 Global
known commonly as the short squeeze, in stock, looking to purchase back the stock at a lower price
which large inflows of funds into a stock price in the future and netting a profit in the difference
between the original price and the compressed later
make any short position on the stock price. However, a short squeeze could lead to a possibly
untenable.1 The GameStop short squeeze infinite loss for the short seller if the price rises
indefinitely. This is why short selling is considered a
1
Shorting a stock involves the anticipation of a future fall comparatively risky strategy, with theoretically immense
in its price. Investors enter short positions on borrowed downside risks if the stock in question actually rises..
Electronic copy available at: https://ssrn.com/abstract=3775127
Financial Crisis (GFC). These wounds had been continued digitalization of gaming and the
glossed over with the shallow bandage of lockdown restrictions. GME’s shares were in
federal stimulus that was largely pocketed by fact sold short by over 140% as of 22 January,
“banksters,” i.e. the American financial elite. 2021. This left an opportune moment for
Both in 2008 and 2020, a disproportionate r/WallStreetBets to launch a short squeeze on
amount of the salvaging stimulus went into GameStop.
the coffers of the 1% rather than into relief for
the American masses. Not a single American At the time, two major hedge funds, Citron
banker was directly jailed for misconduct Research and Melvin Capital, were
during the GFC, and yet a generation of aggressively short-positioned to crush
redditors was coming of age with vivid Gamestop’s stock. Citron had in fact issued a
memories of the traumas that their families comment a short time prior to the short
faced during that time of crisis and thereafter squeeze, saying that Gamestop’s price would
as well. fall. Yet given the galvanization of small-time
investors in favor of the short squeeze, GME’s
During the 2020 coronavirus pandemic, many price shot up by more than 700% by January
people were forced into lockdown conditions, 27, and its excessive volatility caused trading
which allowed them to explore avenues for to be halted multiple times during that
redeploying their scant capital. Record-low duration. The volatility in options volume also
interest rates and constrained ability to spend instigated a gamma squeeze, as market
on discretionary items during the lockdown makers were being forced to purchase shares
also fueled surplus capital among small-scale to hedge the increasing short exposure.
investors. Coupling this confinement and
surplus capital with a seething rage against There was also elite sympathy for the
the “machine” of late-stage American subredditors, as when tech baron Elon Musk
capitalism led to the genesis of the Gamestop tweeted a link to r/WallStreetBets after GME
Short Squeeze movement. closed trading +92.7% on January 26. Excluding
extended-hours trading, GME’s price was at
In the run-up to the short squeeze, $483.00 (which as 190x higher than the
Gamestop’s shares were already sold short in stock’s historic low of $2.57), which translated
excess, thus putting a downward pressure on into a market capitalization of US$33.7 billion,
the stock that suggested an almost certain thus making GME a larger listing than many
conviction in its forecast decline, due to companies on the S&P 500 index.
problems of adaptation within the firm to the
Electronic copy available at: https://ssrn.com/abstract=3775127
GME was not the only company that came in subredditors ensued and the share price fell to
the subreddit’s crosshairs. AMC was the next $300, but this was assuaged by extensive
target of a short squeeze,2 in part because of community support on social media sites.
its similar short position share pressure. Its There were other ebbs and flows in the price
value also rose astronomically (+480% thereafter, which the major broker
seven-day rise). Other names included (Robinhood) sought to control. According to
Blackberry, Koss Corporation, Nokia, and social media websites, many traders were
Eastman Kodak. mulling the filing of complaints with the
Securities & Exchange Commission.
The counter-hegemonic push by the
subredditors caused disruptions to trading For its part, the hedge fund Melvin Capital, lost
across the financial system, and multiple 30% of its value year-to-date (YTD) after the
brokerages reported restrictions and short squeeze. Melvin procured $2.75 billion in
disruptions (such as TD Ameritrade). It is worth emergency funding before closing the position
noting that trading volumes on January 27 (in on January 26. Meanwhile, Citron closed its
terms of share count) were in fact higher than position with a 100% loss.
the peak of October 2008 during the GFC, and
was the third-highest in dollar terms over the Several centrist and leftist American leaders
past twenty years (since counting from the condemned the subsequent complaints from
internet dotcom bubble of 2001). hedge funders as largely hypocritical. They
accused hedge funds, who have garnered a
On January 28, 2021, GameStop shares notorious reputation for market manipulation
opened even higher in pre-market trading, and cold-blooded financial gimmickry, and yet
reaching a high of $500. However, at they had the gall to complain about
approximately 8:00 AM EST, Robinhood counter-hegemonic actions from public
delisted GameStop, AMC, BlackBerry, and activism. Senator Elizabeth Warren noted that
Nokia from its trading platform, thus creating hedge funds “have treated the stock market
a counter-counter-hegemonic restriction; like their own personal casino while everyone
whereby users could no longer open new else pays the price". Representative Alexandria
positions in the stock, even as they could still Ocasio-Cortez (AOC), Representative Rashida
close existing positions. A minor panic among Tlaib, echoed this sentiment.
2
AMC Networks (Ticker: AMCX) is a similar Reddit co-founder Alexis Ohanian compared
sounding company that also saw significant price
the Gamestop short squeeze to Occupy Wall
rises
Electronic copy available at: https://ssrn.com/abstract=3775127
Street, saying that “it’s a chance for Joe and
Jane America — the retail buyers of stock —
to flex back and push back on these hedge
funds." This statement encapsulates much of
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Electronic copy available at: https://ssrn.com/abstract=3775127
