LONDON, Jan 25 (Reuters) - Shares of U.S. videogame retailer GameStop were up by about 50% in pre-market trading on Monday, on course to reach another record high after having already gained about 250% since the beginning of the year.
Traders believe that the reasons for the jump in the shares are short-sellers quickly buying back into the stock to cover potential losses, defined as a short-squeeze, and retail investors piling in to benefit from the surge.
The short betting was pretty evident with 100% of the shares available to borrow to speculate against the company already out on loan, FIS’ Astec analytics data as of Friday showed.
Short sellers typically borrow and sell shares in companies they expect will fall in price, hoping to buy them back at a lower price and pocket the difference.
The trading strategy is high risk in that losses are theoretically unlimited when the stock rises instead of falling.
Some investors believed GameStop’s retail business model was outdated and took bets against the company.
Last week, short-seller Citron Research said the stock would be “back to $20 fast”.
Backers of the stock cheered GameStop’s announcement on January 11 about appointments to its board to double down on digital sales.
At 1119 GMT, GameStop shares were up 46.8% at $95.10 in premarket trading in the United States while surging more than 70% in cash trading in Germany.
“I think this is like a carousel this morning: U.S. retail is adding fuel to the fire on Friday, which triggers German retail to massively buy (...) and then U.S. traders see this massive rise overnight and pile on again,” a Berlin-based trader said.
An email sent to GameStop outside business hours requesting comment on the trading of its shares was not immediately answered.
(Reporting by Julien Ponthus and Thyagaraju Adinarayan in London. Editing by Jane Merriman)
Source: Reuters