Should You Short GameStop?

There's a short answer.

First, let me say that this is not intended as investment advice. Every investor is different, with diffrent goals, needs, etc. Every investor should consider all investment options with respect to his or her individual circumstances and seek professional advice, as needed.

That said, I’m doing more than short GameStop. I’m buying a put.

The recent movement in the price of this stock reflects a phenomenon I don’t recall seeing. There is apparently a social activist movement afoot to punish short-sellers of the stock, which includes some large, unpopular hedgefunds. Evidence of this is found in social media spots, such as the Wall Street Bets sub-Reddit.

If you’re unfamiliar with GameStop, it is a company that owns thousands of retail stores that buy, sell, and trade physical video game copies, along with gaming accessories and fanboy/fangirl paraphernalia. The stock price fell consistently for years, as sales of video games moved to online streaming. Witness the 5 year chart below:

You can’t help but notice the more than austentatious spike at the end, but don’t let it distract you from the consistent trend downward heading into this year. There was a recovery in the stock underway, in which the price reached over $20-per-share, before the recent extreme run-up. This limited rise since the bottom reached during the beginning of the pandemic crisis was perhaps based on the outlook on business fundamentals. The spike sense is decidedely unlikely so.

Presumably, the activist money added in recent days cannot stay in a stock without concomitant earnings prospects forever. It’s hard to imagine this continuing for many weeks or months. My guess is, once the social activists are satisfied they’ve punished the hated shorts enough, the fever will pass.

I should note that, reportedly, there are other stocks that have also been boosted by these social activist investors. They include Macy’s; AMC Theaters; Bed, Bath, and Beyond; and Tilray, among others. However, given the extremity of the GameStop price, it seems the best put buy option.