Gamestop Short Squeeze

• Economie
• Voortgezet speciaal onderwijs

What sort of business is the American company Gamestop?

How is this company doing during lockdown?

And this one?

In finances, what is a share?

When do you earn money with a share?

'Long' trades

• 'Normal'
• I buy now and try and sell later for more money.
  
• For example: I buy 100 ABM AMRO shares for €8.56 each and sell them later for €9.26 making a profit of €70.
  
• Profit is made when the value of shares rises.
  

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'Short' selling

• You need a special contract to make these deals.
  
• I borrow some shares (for a fee) sell them with the agreement to buy them back on a fixed date in the future for the market value.
  
• For example: I sell 100 ABM AMRO shares for €8.56 each and buy them later for €7.86 making a profit of €70.
  
• Profit is made when the value of shares falls.

Short Selling

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What happened with Gamestop?

• Large investors (hedge funds) sell short with Gamestop.
  
• Large groups of individuals see that and buy shares.
  
• The share price rises.
  
• The hedge funds lose loads of money ($70 billion)
  

And now?

• Some share dealers have been blocked by the authorities from dealing in Gamestop (Robin Hood)
  
• The story continues on social media but has broken through to the mainstream media.

How will this end?

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I buy 10 shares for €10 each. Tomorrow they are worth €11.
I make...

1. €1 profit
2. €1 loss
3. €10 profit
4. €10 loss

I go short on 10 shares with a price of €10 each.
Tomorrow they are worth €5.
I make...

1. €5 profit
2. €5 loss
3. €50 profit
4. €50 loss

I go short on 10 shares with a price of €10 each.
Tomorrow they are worth €100.
I make...

1. €90 profit
2. €90 loss
3. €900 profit
4. €900 loss

Which companies will be hit by the lockdown measures? Find out five likely victims. Be ready to share them next lesson.

Who knows, perhaps you can spot the next Gamestop?!