GameStop Stock Is Just the Latest Sign of a Speculative Frenzy
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A shopper leaves a GameStop store with the new PlayStation 5 gaming console last Black Friday.
Aimee Dilger/SOPA Images/Getty Images
A return to normalcy or snafu? The former recalls the presidency of Warren G. Harding, inaugurated a century ago, after the upheavals of World War I and the flu pandemic of 1918. The latter refers to an acronym from World War II, which roughly translates to “Situation normal, all fouled up” in its PG version.
Snafu rather than normalcy seems more apt to describe the speculative frenzy in certain quarters of the financial markets. Frenetic trading in stocks and options of no apparent worth has erupted anew, a classic sign of speculation that often coincides with tops in the market.
The new poster child for this craziness is
GameStop
(ticker: GME), which frankly I had forgotten still exists. The bricks-and-mortar retailer of videogames, both new and used, shuttered my local store, which had been a few doors down from what once was a Blockbuster Video outlet. I thought both had been supplanted by online delivery of content. Ditto for the youngest member of the Forsyth household, an avid gamer, whose powerful PC lacks a DVD drive for physical content.
Yet traders have piled into GameStop, sending the stock soaring more than 80% Friday before being halted; it ultimately closed up more than 50%. Not coincidentally, the shares have been heavily shorted and have been prominently featured by Andrew Left, the head of Citron Research, who posted his assessment of the extreme overvaluation of GameStop in a YouTube video that fanned only contempt from the stock’s fans.
The speculative froth also has been visible in other corners of the market. Ironically, the cooling of the frenzy in Bitcoin—back to around $32,000 from a recent peak over $40,000, following its surge from around $24,000—has shifted the speculative crowd back to the action in megacap tech stocks. But instead of slices of these shares with prices in the hundreds or thousands of dollars, they’re playing the low-price options on these names, says Julian Emanuel, BTIG’s chief equity and derivatives strategist.
Specifically, the punters are buying…
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