Yesterday we talked a bit about the Reddit WallStreetBets group banding together over GameStop Corp (NYSE: GME) shares. The group is an alliance of novice traders who managed to jack the GameStop share price over 700% last week.
During yesterday's NYSE trading day, word on the street (AKA Twitter) was that AMC Entertainment Holdings (NYSE: AMC) was the next target of WallStreetBets. BlackBerry Ltd. (NYSE: BB) has also been associated with the epic short squeeze action we've been witnessing.
GameStop crashes as Robinhood and other brokerages restrict trading
The Wall Street Journal reported earlier that Robinhood Markets Inc., along with a group of other brokerages, restricted GameStop and AMC trading.
Additionally, trading restrictions were set on Blackberry, Bed, Bath & Beyond Inc. (NASDAQ: BBBY), Express Inc. (NYSE: EXPR), Nokia Corp headphone maker Koss Corporation (NASDAQ: KOSS) and Naked Brand Group Ltd. (NYSE: NAKD).
Amidst these restrictions GameStop shares were down over 40% at one point.
Robinhooders go crazy, co-founders bend, GameStop surges
For those who aren't familiar, Robinhood is a commission-free stock trading application. In this light, it attracts a particular demographic amongst its massive user base. This demographic passionately supports the idea of 'free trading' and are happy to be outside of fees and restrictions that brokers can impose.
That is, until Robinhood starts imposing restrictions.
Needless to say, the Twitter frenzy happening around all of this as I'm writing is too quick to keep up with. So fast, in fact, that just as the rags start publishing about the restrictions, Robinhood co-founder Vladimir Tenev removed them.
Starting tomorrow, we plan to allow limited buys of these securities. We'll continue to monitor the situation and make adjustments as needed.
VLAD (@vladtenev) January 28, 2021
GameStop stock is currently up about 40% in after hours trading and AMC has soared 23%.
Does this mean that people are breaking laws?
Part of what's gassing up the GameStop-ignited inferno we're inside of is that, technically, no one has broken any laws.
For example, inside trading is illegal in the finance industry. This is a widely known fact. However, there isn't any US law that says you can't make investing decisions with your friends.
It just so happens that during this day and age, you can address all of your friends at once. Say, by chatting with them in a WallStreetBets thread, for example.
Meanwhile, a trading platform banning users from making trades is a new one. This is a big part of why Twitter is out of control at the moment with chatter over this unprecedented move, which essentially blocks free trade.
Perhaps this is why Robinhood users filed a class action lawsuit against the company's decision to restrict the transactions of individual investors but allow hedge funds to keep trading.
Foolish takeaway
The soap opera of events set off by GameStop is spreading rapidly — what that will mean for the markets is hard to say.
Aside from share price volatility, the recent events draw attention to bigger issues like brokers policing trades and the essence of options trading in the first place.
Short selling isn't anything new, and neither is the controversy. There are conflicting viewpoints that will continue to fuel the unfolding events.
Even the richest man in world has weighed in, sharing the following thoughts amongst the unfolding drama.
u can't sell houses u don't own
u can't sell cars u don't own
but
u *can* sell stock u don't own!?
this is bs – shorting is a scam
legal only for vestigial reasons— Elon Musk (@elonmusk) January 28, 2021
And the closing thoughts from Reddit?
You guys understand this is beyond a movement.. this is a new normal.
The market is not going anywhere.
We have shown that if we want a stock we will buy it & maximize the return.
Exact same things hedge funds do to make BILLIONS.
— Reddit Trading
(@reddittrading) January 28, 2021
