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The EPIC Gamestop (GME) Short Squeeze. Did Anyone See This Coming?

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by Gavin in Blog
January 18, 2021 0 comments

The following is a guest post from Swaggy Stocks.

GME had a face-ripping rally this week as margin calls ran amok and shorts were forced to cover.

It’s no secret many funds were short Gamestop as the company has been teetering on the verge of bankruptcy and negative growth.

Former Chewy (CHWY) CEO and co-founder Ryan Cohen has made his presence on the Gamestop board and is known for his pro-activeness in trying to turn the Gamestop story into that of an e-commerce giant, similarly to Chewy.

Could anyone see this recent squeeze coming?

While the big boys were out shorting this stock, a group of Reddit traders, known as WallStreetBets have been predicting this for many months.

SwaggyStocks, one of the best Reddit stock trading sentiment aggregators on the internet may have predicted this move in the GME stock.

short squeeze

Let’s take a look at the SwaggyStocks -WallStreetBets Tickers page that shows the distribution of tickers mentioned among the forum.

Yesterday during the volatile price action for GME shares (up 50-90% that day), comment volume reached over 30% of all ticker mentions on the sub-reddit.

Comment volume alone for the ticker reached 5,500 for the day, quite incredible.

short squeeze stocks

If we drill down the selection to the GME ticker, we can take a look at the sentiment over time chart that SwaggyStocks provides us.

Back in late December (around the 22nd), we see a fairly moderate spike in chatter around GME where the comment volume, reached 20%.

What happened on that day?

Ryan Cohen announced he increased his stake in Gamestop from approximately 9% to roughly 13%, a 4% increase.

That day the stock price shot up from $15 to about $19 and so did the hype surrounding the stock.

What’s interesting to see is that for the following 3 weeks the GME share price had nearly no movement, staying in an relatively close daily range of just about 3-4%.

During this time of lower volatility chatter surrounding the stock began dying off as the comment share dropped from 20% to it’s low of 4% just before this massive squeeze.

Does sentiment have an effect on the stock price?

Will the stock price follow sentiment and “hype” surrounding a stock or does the inverse happen?

It’s hard to say, but looking at most sentiment charts on SwaggyStocks we can see that after a stock has initially taken off to meme status, the best entry points are actually after hype dies off and nobody is talking about them.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Options Trading 101 - The Ultimate Beginners Guide To Options

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