UPDATED 21:22 EDT / JANUARY 27 2021


Subreddit users cause stocks in GameStop and AMC to skyrocket

The answer to the question, “Can social media influence stock prices?” has been definitely answered.

R/wallstreetbets is a subreddit, a forum on the online discussion site Reddit where amateur traders share stock and investment tips. In their own words, they are “like 4chan found a Bloomberg terminal illness.” The premise may be amusing, but the subreddit has 3.7 million users and those users have money that can move markets.

Wallstreetbets took an interest in GameStop Corp. on Jan. 26. Remarkably, given that real life is different from simply trolling online, the users caused GameStop stock to surge from $76.74 Jan. 24 at 4 p.m. EST to $347.51 today as of the close of regular trading at 4 p.m. EST.

The real-life meme magic didn’t stop there, however. Wallstreetbets then decided that AMC Entertainment Holdings Inc., the American cinema chain that has been in deep trouble because of the COVID-19 pandemic, was underpriced. AMC stock, which had been trading at below $3 up to Jan. 21, closed regular trading today at $19.90, up more than 300%.

Jim Cramer, who is well-noted for his colorful stock analysis on CNBC, for once wasn’t exaggerating when he said “we’re seeing a phenomenon that I have never seen” and that “it’s insane.” CNBC is claiming that Reddit is pushing a “Ponzi scheme” that can’t last and is comparing it to Korean pop group fans and something to do with TikTok users causing Donald Trump to not be reelected.

The online exchange Robinhood Market Inc. has also gotten attention because it’s used by many r/wallstreetbets users. “Most of our customers are, you know, what’s called buy and hold,” Vlad Teney, chief executive of Robinhood Chief Executive Officer Vlad Tenev said in an interview on CNBC. “Obviously the passive ones don’t get as much attention out in the public.”

In response to the trading activity on Gamestop and AMC, Tenev noted that Robinhood had raised margin trading levels required to trade in the two stocks. “I do think it’s wrong to assume though that most of our activity is characterized by trading of volatile stocks,” Tenev added.

Image: Reddit

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