On Sunday, September 8th, 2019, Keith Gill made his first reddit post related to his GameStop investment. The post is a screenshot of his E-Trade investment account, showing his GameStop investments as well as the cash held in his investment account. Here is the post below.

The post reveals a total of 100,000 shares worth of call options with a strike price of $8, expiring on January 15, 2021 that Keith purchased for $53,566.04 as well as $13,962.21 of cash in his account. At the time of his post, Keith’s investment was worth $100,000, up $46,433.96 from when he originally purchased the call options.

Keith’s investments would be considered a very aggressive bet on a stock, especially considering Keith GIll was a working class man when he made this investment. Call options are very risky, as they can expire worthless if the stock is trading below the strike price at the time of the option’s expiry. This post got 44 upvotes, and 76 comments due to the aggressive, high risk nature of the investment. It also sparked some “hate” as some reddit users believed his options were sure to lose him money due to some of the negative narratives about GameStop’s viability as a business.

Here are some of the comments he received on this post.

This would be the first of his many “YOLO Update” posts, where he would screenshot his investment account to let other reddit users know how his GameStop investments were doing.

Investing 101: What are call options?

Call options are the opposite of put options which were discussed earlier. A call option is a contract you can buy on the market that allows you to buy shares of a stock at a predetermined price (the strike price) by a certain date in the future (the expiry date).

In order to purchase call options, you must pay the investor selling them to you a premium. Again, this is similar to an insurance premium you would pay an insurance company. In this case you pay the investor selling you the call options, so that if in the future you decide to buy shares from them at the predefined price you agreed on, that investor must sell them to you at that strike price, regardless of what the actual market price of the shares is at that moment.

How can call option buyers profit?

Here’s an example: An investor thinks XYZ’s stock price will go up in the next 2 months. The current price of XYZ’s stock is $10. The investor buys call options for 100 shares of XYZ with a strike price of $11 that expire in 2 months. The premium for the options is $1, so the investor pays $100 ($1 X 100) upfront for the 100 calls on XYZ. 2 months go by and the day prior to the options expiring, XYZ is now trading at $15. The investor’s options are now worth at least $4 each. This is because the investor could buy shares of XYZ for $11 from the investor that sold them the call options and then immediately sell the shares on the market for $15 each. Since options trade on the market, the investor can either sell his options for at least $4 each, or he can buy 100 shares of XYZ for $11 and then sell them on the market for $15 each. Either way after taking into account the $100 premium the investor originally paid for the call options, the investor will net a profit of approximately $300 ((100 X $15) - (100 X $11) - (100 X $1)).

How can call option buyers lose money?

Here’s an example: An investor thinks XYZ’s stock price will go up in the next 2 months. The current price of XYZ’s stock is $10. The investor buys call options for 100 shares of XYZ with a strike price of $11 that expire in 2 months. The premium for the options is $1, so the investor pays $100 ($1 X 100) upfront for the 100 calls on XYZ. 2 months go by and on the day the options expire, XYZ is now trading at $5. The investor’s options are now worth approximately $0, since the investor would never use his option to buy the shares of XYZ for $11 when they can be bought on the market for $5. Even though options trade on the market, it is unlikely any investor would want to purchase these call options for any significant sum of money as they themselves will have no use for them either, since they can buy shares in the market at $5, which is much better than the $11 they could buy the shares for using the options. Either way, in this scenario the investor will lose the $100 premium they originally paid for the call options, the investor will net a loss of approximately $100. The maximum loss for a call buyer is the premium they originally paid for the call options.

After receiving pressure from both Hestia Capital and Dr. Burry’s Scion Asset Management, GameStop repurchased 34.6 Million shares for a total of $178.6 million during the first 3 quarters of 2019. This was significant as it reduced GameStop’s share count to 67.8 million shares outstanding, increasing the proportional ownership of each share still outstanding by approximately 56%.

The large amount of share repurchases was also meaningful due to the high short interest the stock had accumulated at this time. Reducing the total shares outstanding would make it harder for short sellers to close out their positions when they no longer wanted to bet against GameStop.

Investing 101: Why were share buybacks inconvenient for the short sellers?

Short sellers at some point were going to have to close out their bets against GameStop. To do this, they must repurchase the shares they’ve sold short in the market and give them back to the brokerage that lent them the shares. Since the company was buying back its own shares and retiring the shares, the total shares available for short sellers to buy back and close their positions was dwindling.

In GameStop’s case specifically, short sellers had short sold a high amount of shares relative to those readily traded in the market. Even before the share buybacks, for all short sellers to close out their bets against GME at once, they would have had to get their hands on 63% of all outstanding GameStop shares, based on the short interest reported by Bloomberg on July 31st, 2019.

It’s important to note some shares were held by insiders (The GameStop management team and other employees) as well as by some long-term investing institutions, neither of which regularly trade their shares. The amount of shares outstanding for GameStop that are readily available in the market is called GameStop’s free float. Free float excludes the shares held by insiders and long term investing institutions.

GameStop’s free float was shrinking due to the share buybacks just as the short interest on it’s stock was increasing. Based on the short interest report that NYSE releases regularly, GameStop’s short interest as a percentage of it’s free float was 111.29% on December 13th, 2019. This meant that if all short sellers wanted to close out their positions on December 13th, 2019, they would have had to purchase every single share that was readily available and then somehow get their hands on shares held by long-term investing institutions or company insiders.

Investing 101: When Does a Small Free Float Become a Problem for short sellers?

The amount of unrealized losses that short sellers can experience is theoretically unlimited. This means that if GameStop’s business outlook improved and the stock started to rise rapidly, which now we know it did, short sellers at some point would begin to accumulate enough unrealized losses that they would be forced to buy back the shares they short sold in order to stop the losses. As the stock is rising and short sellers are starting to buy back the shares they sold short, having few shares available in the market makes it harder for short sellers to find enough shares to purchase. In GameStop’s case specifically, having an 111.29% short interest as a percentage of it’s free float, meant that as the price went up, short sellers would be racing each other to buy the limited supply of shares. This would cause them to compete with each other for the shares by offering higher and higher prices in the market just to buy back the shares they needed. This creates a vicious cycle of increasing prices and rapidly growing losses for short sellers. This nightmare scenario for short sellers is known as a 'Short Squeeze'. This phenomenon was a large reason behind GameStop’s rise in January 2021.

On Saturday, February, 29, 2020 Keith Gill posted one of his regular updates showing the reddit community how his GameStop investments were performing. By this point fears of what the novel COVID-19 virus could do to the global economy were building.This had caused the SP 500 to drop 12.95% from its all time high reached just 10 days earlier on February 19, 2020. Due to poor earnings results in the quarters that had just passed as well the fears of what COVID-19 could do to a brick and mortar business like GameStop’s, GME was trading at just $3.60 compared to the $6.51 it had traded at on December 10, 2019. Here’s Keith’s post.

What’s shown in the post?

In the post, Keith reveals he had increased his position to 260,000 shares worth of call options costing him a total of $86,677.39 up from the 100,000 in his original post (posted on Sept 8th, 2019) that he’d purchased for $53,566.04. Due to the decline in GameStop’s price, the screenshot shows he is now in the red, and his investment is down $42,377.39 or 48.89%.

Why is it important?

This update was significant because it showed Keith’s conviction in GameStop’s stock as he had continued to increase his bets on the stock even as the stock fell. It also shows readers that although his investment was ultimately incredibly lucrative, it wasn’t a smooth ride, at this point in time he was down $42,377.39.

Dr.Burry had continued to acquire shares in GameStop and had accumulated 3.4 Million shares in the company by April 2, 2020, making Scion Asset Management a 5.3% owner of Gamestop at the point. Acquiring more than 5% of the company’s shares required him to file a Schedule 13D. This filing was significant as it showed that a well respected investor like Dr. Burry continued to believe in GameStop’s future and had increased his stake by more than 6-fold from the 536,862 shares Scion Asset Management originally purchased in late 2018.

On Friday April 3, 2020 GameStop would hit what is to this day the lowest price it’s ever traded at, $2.57. From this point forward the stock began its ascend into the triple digits.

During the month of April the market began to recover from it’s COVID-19 driven fall it experienced in February and March of 2020. At the close of trading on April 30th, 2020 the SP 500 was up 32.87% from it’s 2020 low that it had reached just a month earlier on March 23, 2020. Along with the market recovering, GME also experienced an explosive recovery from it’s lows and was up 123% from the all-time lows it had reached less than a month earlier on April 3, 2020. This rebound in GameStop’s shares was likely due to both the change in sentiment for stocks by investors in general as well as the positive sentiment generated by Dr. Burry’s 5.3% stake in the company.

The rise in GameStop’s stock’s price favoured Keith’s investments really well as you will see below in his Reddit update post.

What’s shown in the post?

In this screenshot we can see that Keith had at this point purchased 250 shares of GameStop and likely cashed in on some of the gains from his call options. We can assume this because at this point he held 190,000 shares worth of call options as opposed to the 260,000 he held in his February, 29, 2020 “YOLO update” post, and he now had $117,356.83 in cash in his account. Although he now had fewer call options, they were worth a lot more, with a market value of $98,232.50. Based on the increase in market value of the call options he still held as well as the cash he held, Keith was up $128,728.11 (149%) on his GameStop investments at this point.

Why it’s important?

This update post was significant as it was his first month-end update in 2020 showing significant gains on his investments.

On July 27, 2020 Keith Gill posted his first YouTube video on GameStop and why he thought the shares were deeply undervalued and likely to go up. In the video he walks the viewers through a very deep analysis he performed on GameStop.

This is one of the most thorough stock research videos I have ever come across on YouTube. He analyzes the company as a business, provides external research that backs all of the points he makes, creates a projection of the company’s financial statements, shares with readers the reasons some people are betting against GME and provides solid research refuting those people’s most fundamental points for betting against GameStop. He does this while remaining genuinely humble and open to the fact that he might be missing something.

Throughout the video he says multiple times that he would love for viewers to comment or write to him if they have solid theories as to why GameStop isn’t a good investment at the low price it was trading at then, making it clear he was open to having his mind changed. I believe it is the humility displayed in his YouTube videos as well as his evidence-based convictions about GameStop’s merits as an investment, that eventually made him such a well liked individual in the Reddit community as well as a great protagonist for journalists.

Why did he make the video?

Based on his intro, he likely posted the video out of frustration that the stock was again trading at a very low price. Here’s how he started the video:

"Yo what up everybody, this is going to be the first video of the Kitty corner. And… the market has kind of forced my hand on this one, the first stock that I’m going to talk about is GameStop"

Why did Keith Gill believe GameStop was a good investment?

Keith Gill thought GameStop was a good investment because he saw many of the same opportunities that Hestia Capital and Dr. Burry had pointed out in their letters to the Board. He believed the market was underappreciating the cash GameStop had on hand, the strong brand value it had amongst gamers, and how long physical games would continue to be valued amongst gamers.

More than providing unique perspectives on GameStop, his video is excellent due to the level of research and analysis he presents in order to validate the points above which had already been made by investment institutions like Hestia Capital and Scion Asset Management. Below are a couple of the points he makes along with the evidence he presented in his video that highlight his excellent research skills:

Point 1 - The stock market is over-estimating the speed at which digital games will replace physical copies.

Nerdy Details: Evidence presented

To make this point he shows a Statista report that says that as of 2018 only 17% of video games are being purchased in physical form. He makes the point that statistics like this one could have been misleading investors into thinking GameStop was in more trouble than it actually was. This is because digital purchases, which made up the other 83% in the report, were potentially skewed by in game and in app purchases, which might have been counted as digital video game purchases, instead of being put in their own category. To prove this point he cites the following excerpt from an article called 'Rumors of the Death of Physical Video Games Have Been Greatly Exaggerated' which cites statistics from a report by the UK’s Entertainment Retailers Association:

“The UK’s Entertainment Retailers Association reported that 80% of game sales were digital in 2018 – although that number included content like costumes and in-game currency, not just the games themselves. Sales of EA Sports’ FIFA still generated 75% of core sales from discs in 2018, according to the UK report. Overall industry sales need to consider the rise of apps too. A 60% drop in physical sales from 2009 to 2017 seems dramatic but consider the revenue sources. That’s not only Xbox and PlayStation involved, skewing the numbers, making the total loss difficult to pin down. A 2018 report from Nielsen states a majority of game consumers prefer physical.

To further prove his point, at the 10:50 mark of his video, he references a few YouTube videos from popular video gaming influencers. In the videos, the influencers are discussing which consoles they recommend people buy, between the digital only versions and the versions that accept discs for the new generation of the Playstation and Xbox consoles. In these videos the influencers are almost always opting for the physical disc versions of the consoles and even within the comments of the videos, YouTube users mention their preference for owning physical versions of the video games they buy.

Point 2 - GameStop has a really strong brand that is being under-appreciated by the market.

Nerdy Details: Evidence presented

Keith pulls up a wikipedia page in his video that shows a list of the top magazines for each country in the world ranked by number of copies distributed. Surprisingly, GameStop’s Game Informer magazine is the 5th most circulated magazine in the United States, more than Time Magazine.

Aside from his thorough qualitative research, he does a very good job at quantifying what his different assumptions would mean for GameStops revenues, profits and assets. Based on this financial analysis he determined $8-$12 to be a fair price for GameStop’s stock.

What about the short squeeze?

Interestingly enough, in this initial video, Keith only mentions the high short interest in passing. At this point in time, he was more focused on the opportunity in GameStop’s stock based on how overly pessimistic the market was on GameStop’s future outlook. This would change in his later videos, where the potential for a short squeeze became a more prominent theme.

Why was this video important?

His ‘average Joe’ demeanor and limited use of finance jargon made the GameStop investment thesis very digestible for retail investors. This would later allow the GameStop investment thesis to become easily spreadable on online forums like Reddit as a lot of novice and experienced investors alike could easily understand the opportunities and risks of investing in GameStop.

On August 18, 2020 Ryan Cohen filed a 13D Schedule with the SEC that revealed he’d purchased 5.8 Million shares in GameStop for $33.97 Million. This amounted to 9% of GameStop’s shares outstanding. He would increase his stake to 6.21 Million shares in Gamestop 10 days later. This was revealed in a 13D Amendment he filed on August 28th, 2020 which showed his total stake had cost him $36.69 Million and made him a 9.6% owner of GameStop.

Who is Ryan Cohen?

Ryan Cohen is the 35 year old co-founder and former CEO of Chewy, an online retailer of pet food and other pet-related products. Ryan founded Chewy when he was 25. His successful management of Chewy allowed him to sell the company to PetsMart for $3.35 Billion in 2017, at the time the largest e-commerce acquisition ever.

Why was Ryan Cohen’s 9.6% stake in GameStop important?

GameStop’s management team had been struggling with growing its e-commerce business and with leveraging its strong brand value to improve its business. Ryan Cohen’s past success as the visionary and founder of one of the most successful e-commerce businesses ever, made him someone who could likely use his ownership in GameStop to influence the management team and help solve GameStop’s troubles. As we’ll cover later, Ryan Cohen would become one of the protagonists in GameStop’s January 2021 rise.

On Tuesday, September 8th, 2020 redditor Jeffamazon posted what would become one of the most influential posts on Reddit’s WallStreetBets subreddit.

What was the post about?

In his post he explained why he was convinced GameStop was primed for one of the biggest short squeezes in the stock market’s history. He thoroughly showed the Reddit community why GameStop was susceptible to a short squeeze and the possible alternatives of good news in the near future that could trigger the squeeze. He shows that including the shares owned by Ryan Cohen at that point (shares Ryan was likely holding for long-term investing), the amount of shares short, made up over 112% of GameStop’s readily tradable shares. As discussed above, a ratio this high would cause a lot of problems for short sellers if the price of GameStop began to rise.

In the post he explains another concept which he thought would also add fuel to the short squeeze. He explains that if investors bought far out of the money call options, they would cause the market makers that sold them the call options to have to buy shares of Gamestop. This would add more demand for GameStop shares. The reason this happens is because the market makers (institutions responsible for making sure that markets have liquidity) are normally the ones buying and selling call options when an investor/trader is buying or selling calls.

A market maker’s goal is to make money from the difference in what they buy the call from one investor versus what they sell it for to another investor. They are not betting on or against the companies they buy and sell options on, they are trying to make a spread regardless of what the stock does. In order to mitigate the risk of losing money on the calls they sell, they buy a few shares of the companies they sell calls on, and if the price of the stock they’ve sold calls on increases, they buy more shares to gain more protection. The Redditor essentially told the readers that if everyone started buying calls on GameStop, they would force the market makers to buy shares as protection against the calls they were selling to them. This would further reduce the shares available for short sellers to close out their positions and it would help push the stock price higher.

In his own words:

"It looks like this: RH(RobinHood) Call Option buying -> MM(Market Maker) Delta hedging/share purchase -> short squeezing -> Greater retail/RHers price action chasing/call option buying -> MM Delta hedging/share purchase -> short squeezing -> Institutional and new channels flip the script -> GME to $400+ -> cash out."

Why was this post important?

This post garnered a lot of attention on WallStreetBets as it gained more than 8,000 upvotes and more than 1,300 comments. This was likely the post that truly made the WSB(WallStreetBets) community aware of the possibility of a short squeeze with GameStop’s stock.

The post also showed traders how banding together and overwhelming the market with call option buying could be one of the triggers of the short squeeze and how they could profit together from the resulting jump in GameStop’s price. It is clear from the most upvoted comments on the post, that this post likely spurred a lot of retail traders to begin buying both GameStop shares and call options.

Below are some of the comments.

The comments mentioning “DD” refer to “Due Diligence”, a category of posts on WallStreetBets where redditors share their long form analysis on stocks they’ve performed research on.

Below is Keith’s update post from September 22, 2020.

What’s shown in the post?

In this screenshot we can see Keith is now up $1.36 Million on his GameStop investments. At this point his account value has increased to $1,501,116.79 making it his first update post where his GameStop investments are worth more than $1 Million. His investment in GameStop was 10,000 shares and 500,000 shares worth of call options at the time of this post.

Why was he up so much?

By this point, Ryan Cohen’s and Dr. Burry’s bets on GameStop were starting to get noticed by retail investors. Posts on Reddit like the one by Jeffamazon as well as research reports written on SeekingAlpha (an online community where users can share their research on investments) were starting to create a buzz for GameStop in the retail investing community. This changing sentiment had driven the price up 37.14% in the 14 days that had gone by since Jeffamazon’s post.

Why is this important?

This update post was significant as it was Keith’s first post showing that he made more than $1 Million with his GameStop investments. His original post revealing his investment had been received with a lot of doubt and people telling him he was destined to lose his money. The comments on this post looked a lot different. By this point the reddit community was aware of the possibility of a short squeeze, and they were starting to view DeepF***ingValue as a hero for having held onto his investments even as they had dropped by more than 40% in February of 2020.

Below are some of the comments he received on this post.

What was involved in GameStop’s partnership with Microsoft?

On October 8, 2020 GameStop publicly announced that it had reached a multi year partnership with Microsoft. The Partnership entailed two main benefits for GameStop.

1. GameStop would adopt Microsoft 365 and Microsoft Teams in its stores to increase employee knowledge sharing and productivity. Additionally employees would receive a new Microsoft tablet that would allow them to better help customers in the store without having to bring customers to the counter.
2. GameStop would be allowed to sell the Xbox All Access in its stores. Xbox All Access allows customers to receive an Xbox console as well as the Xbox Ultimate Pass for no upfront cost at low monthly payments on a 24-month plan.

Why was the Microsoft partnership important?

This partnership was viewed as important by investors as it was one of the first signs that GameStop’s management team was beginning to make changes to modernize GameStop. The market reacted very positively to this news, driving the price up 44.12% from the previous day’s close. The move was on volume of more than 77 million shares, the highest volume ever for GameStop’s shares up to that point.

What was said in Ryan Cohen’s letter to GameStop’s Board?

On November 16, 2020, Ryan Cohen, now owning 9.98% of GameStop’s shares, wrote a very public letter criticizing the GameStop Board of Directors. In the letter he calls out the Board for being unaccountable and unadaptable as GameStop failed to capture the growth in the gaming industry by remaining a simple brick and mortar retailer. He restates many of the same points previously mentioned by Dr. Burry, Hestia Capital and Keith Gill. He advises the Board to close unprofitable stores and to leverage their high brand value amongst gamers to create an offering within video game streaming and digital gaming which are rapidly growing markets. He makes it clear that the Board had failed to guide GameStop in the right direction.

Nerdy Details: A couple of excerpts from the letter

"Through our private conversations, we have explained to Mr. Sherman and the Board that GameStop has the ability to pivot toward becoming a technology-driven business that excels in the gaming and digital experience worlds. But this pivot requires the type of strategic vision that has not yet taken hold in the c-suite or Boardroom of the company."

"In this spirit, we urge you to quickly provide stockholders with a credible and publicly-available roadmap for cost containment, prioritizing profitable retail locations and geographic markets, and building the e-commerce ecosystem gamers deserve."

He closes the letter off with a threat, at least that’s how the investment community saw it.

Nerdy Details: His closing paragraph

"Please be advised that RC Ventures is not interested in receiving a lone seat on GameStop’s ten-member Board. It is not enticing to become an isolated stockholder advocate on a Board that has overlooked years of digital revenue opportunities and presided over massive value destruction without assuming full accountability. We want GameStop’s leaders to do their jobs and implement a strategy for bringing the Company into the 21st century."

Investors perceived the last paragraph to be a threat to the Board, as he seems to imply that simply giving him a seat on the Board won’t be enough for him to go away. Investors perceived this letter to imply that either the Board starts to act on GameStop’s opportunities, or Cohen will use his large ownership and influence to not only get himself on the Board but to get rid of the current Board and vote on new members that will push the management team in the right direction.

Why was this letter important?

The threatening undertone of the letter and the clear strategic initiatives that Ryan Cohen outlines were received very positively by investors. They saw this letter as a sign that there was finally going to be someone that was going to be able to help GameStop adapt to the new world of gaming. Given his success with Chewy, this was a man the retail investment community trusted. This type of activity from a prominent entrepreneur also helped increase the probabilities that more positive things could happen for GameStop. Any of which could propel the short squeeze the Reddit community was betting on. By November 30th, just 2 weeks after this letter, the stock had risen 37.31% to $16.56.

Here are some comments from a post discussing the letter on the day it was released.

On November 29, 2020 Reddit user ronoron {https://www.reddit.com/user/ronoron/} made a post on the WallStreetBets subreddit showing users that Melvin Capital had a large bet against GameStop.

What was the post about?

The reddit user had gone through their regulatory reports and found that they had 5.4 Million shares worth of puts at this point. The user speculated that Melvin Capital likely also had a really large short position on GameStop; he couldn’t confirm that, as short selling by institutions does not have to be reported. He made this educated assumption based on the aggressive nature of the puts, Melvin Capital’s tendency to make aggressive bets, and the fact that the short interest remained so high even as GME had risen more than 5-fold from it's all time lows in April. He reasoned only a really large hedge fund like Melvin Capital would be betting this aggressively against GameStop and be able to continue holding the position even as the losses continued to mount.

Why was this post important?

Generally speaking, WallStreetBets members have an anti-establishment bent that can be seen across their posts and comments. Short-sellers are seen as evil in the eyes of the WallStreetBets community. They are seen as high class elites, attempting to profit from businesses' demise. Given this sentiment, Melvin Capital became a target of hate for the WallStreetBets community.

Below is a screenshot of Keith’s update post from November 30th, 2020:

What’s shown in the post?

In this screenshot we can see Keith’s portfolio is now worth more than $3 Million. At this point he has sold and realized the gains on 200,000 shares worth of call options, and his investment in GameStop is now 10,000 shares and 300,000 shares worth of call options.

Why was he up so much?

Ryan Cohen’s threatening letter to the Board of Directors was received very positively by the market as discussed earlier. This caused the price of GameStop to rise more than 37% in the two week period between Cohen’s letter and DeepF***ingValue’s YOLO Update post on November 30, 2020. The rapid rise in price caused Keith’s call options to appreciate significantly, leading to most of the gains seen in the screenshot above.

Why is this important?

Keith’s sequence of consecutive update posts showing higher and higher portfolio values, continued to spur the buzz that was already building about GameStop on retail investing social media platforms like WallStreetBets. Users were inspired by Keith’s ability to continue to hold his investments in GameStop even after turning his total investment of less than $150,000 into more than $3 Million. These types of posts, of a working man making millions by betting on GameStop, helped add fuel to the rising prices GameStop’s stock was experiencing, as it inspired more and more retail investors to invest in GameStop.

On December 17, 2020 Ryan Cohen filed a 13D Schedule with the SEC that revealed he’d increased his stake in GameStop to 9,001,000 shares which he paid $75.90 Million for. This amounted to 12.9% of GameStop’s shares outstanding.

Why was Ryan Cohen increasing his stake in GameStop to 12.9% important?

Ryan Cohen’s confidence in GameStop, demonstrated by his continued purchasing of its shares even as the price was rising, was received very well by the market. 6 days later, on the close of December 23, 2020 the price of GameStop’s shares had already risen another 38.7% to $20.57, the first time the stock closed above $20 since October 10, 2017.

On January 11, 2021 GameStop announced that it had reached an agreement with Ryan Cohen to give him as well as 2 of his previous executive colleagues from Chewy seats on the Board.

Why was Ryan Cohen’s appointment to the Board important?

Ryan Cohen’s appointment to the Board along with Alan Attal the ex-Chief Marketing Officer of Chewy and Jim Grube the ex-Chief Financial Officer of Chewy meant that Ryan Cohen would now be able to directly influence the GameStop management team. The 3 new Board members' success with Chewy gave GameStop investors even more hope that the company would enter a new growth phase.

Furthermore, his appointment to the Board further signaled to the market that Ryan was going to be sticking with his GameStop investment for the long run. This is the kind of good news that retail traders on Reddit’s WallStreetBets were waiting for to help initiate the short squeeze. At the close of market on January 14th, 2021, just 3 days after this announcement, GameStop’s shares had almost doubled and traded at $39.91.

Who is Andrew Left?

Andrew Left is a prominent investor and founder of a popular investment newsletter Citron Research. His goal is to find companies that are either committing fraud or are overvalued. Once he identifies these companies, he publishes reports that advise readers to short sell the stocks of these companies, with him also often shorting the stocks he writes about.

One of his most successful shorts was on Valeant Pharmaceuticals, now Bausch Health, he wrote several reports claiming they were overstating their revenues and illegally guiding their customers to purchase more expensive drugs than necessary. His initial report was released on September 28, 2015. The reports led to an investigation on Valeant Pharmaceuticals by the SEC. At the time Valeant was Canada’s largest company by market capitalization. The scandal led to the company’s stock declining as much as 95.77% less than 2 years after his reports were released.

How is Andrew Left involved with GameStop?

On January 19th, Andrew Left posted from his Citron Research Twitter account that he would be releasing 5 reasons why people buying the stock were “suckers” and why the stock would fall back to $20.

Below is the tweet.

The tweet was taken as condescending by retail investors and received a lot of hate in the comments section. Here are the top comments on this tweet.

On January 20th, Andrew decides to postpone his livestream to the following day as he claims not wanting to interrupt Biden’s presidential inauguration ceremony.

On January 21st Andrew Left started his livestream and ended up suffering “technical” issues and was unable to host the livestream. He blamed the issues on angry reddit investors attempting to hack his Twitter. Here’s his tweet when this happened.

Later that night Andrew Left uploaded a video to YouTube explaining his 5 reasons GameStop was going back to $20 and why it was overvalued at the current price. In the video he also reveals that he himself is short GameStop. The reasons he provides are more or less the same weaknesses in GameStop’s business that most investors were already aware of. He carries through the video with an arrogant demeanor and states that even if the stock keeps rising, he’ll simply continue to short sell it at higher prices.

Why is this important?

As mentioned earlier, short sellers are hated in the WallStreetBets community. Andrew Left, being a short seller and also publicly bashing the stock that many in the reddit community were invested in, made him public enemy number one. Because of this, Andrew Left’s video was received almost as a challenge by the reddit investing community. Traditionally, the release of his short-selling reports led to the target companies’ stocks significantly declining in the days following the release of his reports. This time, the exact opposite occurred.

What happened?

On Friday, January 22, 2021, the day following the release of Andrew Left’s GameStop YouTube video, GameStop’s stock moved suddenly from it’s opening price of $42.59 to a high of $76.76 before closing at $65.01. This was it’s highest close ever at that point, up 51.08% from the previous day’s close . It was also the day with the highest volume ever for GameStop’s shares up to that point. January 22, 2021 marked the beginning of the short squeeze for GameStop’s shares. It also marked the beginning of mounting ridicule and investment losses that Andrew Left would sustain.

Why do we think this was the start of the short squeeze?

The move happened suddenly during the trading day on the highest volume GameStop has ever experienced. A move of this magnitude occurring without any specific news item coming from the company is a good indication that this was the breaking point when some short sellers could no longer handle the losses and thus began racing to buy the shares back that they needed to close out their short positions.

Even after the massive move, the short interest as a percentage of GameStop’s float remained above 100% at Friday January 22, 2021’s close. S3 Partners is a firm that amongst other things, provides daily short interest data on stocks. During GameStop’s crazy January move, the firm and its data became really popular in the WallStreetSBets community. Every day, the data they released would be used as a method of determining whether shorts had closed out their positions. This is because a large drop in short interest would be a signal that the short squeeze was likely coming to an end.

Below is a graph from December 29, 2020 to January 27, 2021 of the short interest as a percentage of GameStop’s float using data from S3 Partners.

As seen in the graph, even after Friday’s massive move, the ratio remained above 130%, leaving room for the short squeeze to continue as there were a lot of short sellers yet to cover.

Here is how Keith Gill’s investments were doing after this initial move.

His portfolio at this point was now worth more than $10 Million and the WallStreetBets community loved it. The post got more than 93,000 upvotes.

That night, he also ran a 7 hour long livestream on YouTube, where he celebrated his investment returns with a cigar and champagne. He even dipped a chicken tender in his champagne at the 4:23 mark in the video. This was done as an “inside joke” for the WallStreetBets community who often refer to investment returns as “tendies”. The word “tendies” originated from “ten” dollar bills, but due to its similarity with the word “tenders”, the relationship to chicken tenders was drawn.

Below is a screenshot of Keith dipping his chicken tender into his champagne on his livestream.

What happened?

On Monday, January 25th, 2021 GameStop started the week with the same volatility it had displayed on the prior Friday. The stock opened 48.79% higher than Friday’s close at $96.73. The GameStop story was spreading like wildfire on Reddit which was luring a lot of traders to join in on the exploding stock. The stock soared to $159.18 during the trading day before dropping quickly below the prior Friday’s close, to a low of $61.13. The stock later recovered some it’s previous gains, closing the day at $76.79, again marking an all time high close.

During the trading day, at around 2:49 PM EST, Bloomberg released a story saying that Melvin Capital had received investment funds of $2 Billion from Citadel and $750 Million Point72 Asset Management.

Monday January 25, 2021 would also be the day that the mainstream media news outlets would begin reporting on the reddit driven GameStop rally. Here are some of the headlines from that day.

1. GameStop stock: The strange but true reason why GME shares keep surging - CNN

2. GameStop shares are on a wild, Reddit-driven run - The Washington Post

3. GameStop jumps amid retail frenzy, shares double at one point in wild trading (cnbc.com)

Why was Melvin Capital getting bailed out with new funds important?

The $2.75 Billion that Melvin Capital received as an investment from 2 other hedge funds would be taken as an early sign of defeat by the Reddit community. Due to the rising losses Melvin Capital was experiencing from their GameStop short, it was perceived that the $2.75 Billion in new funds were received as a lifeline in order for them to avoid being forced to close their short position.

Citadel being the main investor providing Melvin Capital with fresh funds, would become a topic of a lot of controversy in the days following. Citadel LLC is a hedge fund which provides market marking services in the financial markets. They are the largest options market maker in the US and one the largest stock market makers in the US.

A market maker is responsible for making sure that certain stocks and options always have a sufficient amount of liquidity (i.e. there is always someone ready to buy or sell the given stock or option at a reasonable price.). They do this by buying and selling the stocks and options they are the market makers for. In return, Citadel is rewarded by keeping the spread (the difference) between what they buy a given stock or option for from one investor and what they sell the stock or option for to another investor.

Market Makers function by “buying” the orders that traders place through brokerages in order to be able to execute them and make their spreads. This is called Payment For Order Flow. This means some brokerages make a significant amount of their revenue from the sale of their customers' orders to market makers like Citadel LLC. This would be the basis for the controversy that would unfold later that week.

Here is how Keith Gill’s investments were doing after the January 25, 2021 move.

His portfolio at this point was now worth $13.88 Million, $2.7 Million more than what it was worth just 4 days back on Friday, January, 22, 2021. From the post we can tell he is still holding almost all the GameStop investments he was holding the prior Friday. We can see he has only sold 20,000 shares worth of call options and is still holding 80,000 shares worth of call options and 50,000 shares of GameStop.

What happened?

On Tuesday, January 26th, 2021, GameStop opened the trading session significantly higher than what it had closed at the day before. GameStop opened at $88.56 and eventually rose to a high of $150 before closing at $147.98, marking its third straight trading day of closing at it’s all time high close. The continued rise in GameStop’s stock price gained the mainstream media’s attention and was likely being pushed higher by new non-reddit investors that were joining the party. Right after the close of trading on Tuesday, Elon Musk tweeted “GameStonk!” with a link to the WallStreetBets subreddit, officially solidifying GameStop as a “meme stock”.

Here is Elon Musk’s Tweet.

Here is how Keith Gill’s investments were doing after the January 26, 2021 move.

At the end of the trading day, as he had become accustomed to doing during this time, Keith Gill posted an update of his portfolio. The post was upvoted 136,000 times, an absurdly huge number relative to most Reddit posts.

His portfolio at this point was now worth $22.845 Million, $8.965 Million more than what it was worth the day before. The post reveals that Keith held onto all of his GameStop investments from the prior day, even as the stock almost doubled on Tuesday, January 26, 2021. The fact that Keith Gill had more than $17 Million in unrealized gains in GameStop and continued to hold his investments, inspired and fueled some in the WallStreetBets community to continue holding their GameStop investments.

Here is one of the most upvoted comments from the post.

The term 'Diamond Hands' used by the redditor in the comments above, is used on WallStreetBets to describe a person who is able to hold onto their investments through the most difficult times.The term references the strength of diamonds and applies it to an investor’s hands, as if to say “hands so strong, no one can take their investments from them”.

GameStop’s meteoric rise would continue the following day.

What happened?

On Wednesday, January 27th, 2021, in the pre-market trading session, GameStop traded more than 100% higher than the previous day’s close. Eventually the stock opened at $354.83, 140% higher than it’s closing price on Tuesday, January 26th, 2021. The new mainstream media coverage GameStop’s stock was receiving as well as the attention it was getting from celebrities and entrepreneurs like Elon Musk, had gained the stock a new wave of mainstream investors. This likely helped spur the significant rise in price GME experienced. The morning started with CNBC announcing at around 6:21 AM EST that Melvin Capital had finally capitulated and had closed its short position the day before. 20 minutes later, at 6:47 AM EST, Andrew Left of Citron research, released a video on Twitter claiming he had also closed most of his short position and had only left a small marginal short position open. Here is his tweet.

During the trading day, the stock fluctuated between a high of $380 and a low of $249 before closing yet at another all-time high close of $347.51.

Why was CNBC claiming Melvin Capital had closed its short position important?

CNBC’s release, as well as other news releases claiming Melvin Capital had closed their short position were highly disputed in the WallStreetBets community. Many Redditors believed these releases were a tactic being employed by Melvin Capital to convince them that they had closed their short position, and thus the end of the short squeeze was imminent. The Redditor’s believed the goal was to cause investors to sell GameStop shares, allowing Melvin Capital to close their short position at a lower price, and suffer less losses.

Various posts were made on the topic in the WallStreetBets subreddit, here is the most upvoted one.

Whether or not Melvin Capital had closed their short position, the short interest reported by S3 Partners at the end of trading on January 27th, 2021 showed that the short interest was still at 139.73% of the float. This meant that either new shorts had taken Melvin Capital’s place, or Melvin Capital had not closed their short position, either way the potential for GameStop’s shares to continue rising was still there. Here is the tweet from Ihor Dusaniwsky from S3 Partners.

Here is how Keith Gill’s investments were doing after the January 27, 2021 move.

At the end of the trading day, Keith Gill posted his usual update of his portfolio. This post was upvoted an extraordinary 212,000 times.

His portfolio had more than doubled from the day before and was worth an astonishing $47.973 Million at this point, $25.127 Million more than what it was worth the day before. This is the largest portfolio value he ever posted on his reddit update posts. The post reveals that Keith held onto most of his GameStop investments from the prior day, even as the stock more than doubled from the day before. We can see that he sold 30,000 shares worth of call options and continued to hold all 50,000 shares he had from the day prior. Just like his previous update posts, seeing Keith continue to hold his GameStop investments, continued to inspire some from the Reddit community to keep holding theirs. Here are some of the most upvoted comments on his update post.

What happened?

On Thursday January 28, 2021 GameStop’s stock started right where it had left off the previous day. The stock traded significantly higher early in the pre-market trading session, briefly trading as high as $500. However, prior to the open of the trading day, news that Robinhood and Interactive Brokers were restricting the purchase of GameStop shares and GameStop options, caused the stock to drop and it would end up opening the day at $265, 23.74% lower than what it closed at on the previous day.

Early in the trading day, the stock recovered and traded as high as $483, which to this day is GameStop’s all time high. Shortly after, as traders realized that most popular brokerages were only allowing its users to sell GameStop shares or close out option positions, the stock dropped rapidly from its peak at $483 to a low of $112.25 before closing at $193.60, 44.29% lower than the previous day’s close.

The trade restrictions being placed by popular brokerages, specifically by Robinhood, would trigger a bout of controversy on WallStreetBets and would lead to a significant spike of negative reviews about RobinHood on App stores. This day would mark the peak of GameStop’s stock price as of the release date of this article, October 20th, 2021.

Here’s what the price action looked like on Thursday, January 28, 2021.

Why did Robinhood and other brokerages restrict trading on GameStop shares and GameStop options?

The reasons that led to Robinhood and other brokerages limiting trades in GameStop are complicated and this article by BloombergQuint does a great job at explaining them simply. It has to do with the inner workings of how the market actually functions.

Investing 101: Clearing houses and collateral

When traders make a trade through their brokerage, the shares or options aren’t actually exchanged between the brokerage of the buyer and the brokerage of the seller until the settlement date. The settlement date is 2 business days after the trade was made (T+2) for stocks and 1 business day after the trade was made (T+1) for options. The trades are settled by financial services firms called clearing houses. To reduce the risk that brokerages involved in a trade will default or be unable to comply with their portion of the trade on settlement day, clearing houses ask the brokerages to send the clearing houses cash or bonds as collateral.

The collateral is normally some percentage of the value of the trade, and that percentage increases or decreases depending on how much risk a clearinghouse perceives there might be that one of the brokerages might not be able to settle the trade. In GameStop’s case, brokerages were allowing traders to buy GameStop shares “on margin” or using loaned money from the brokerages, this is a normal practice for brokerages. The unique risk to GameStop was how violently the price was fluctuating.

The violent fluctuations increased the risk that some traders would lose more money than they had in their brokerage and therefore brokerages like Robinhood would have to cover the losses. If the losses were too great, it would be possible for brokerages themselves to be unable to cover the losses and therefore unable to settle the trades with the clearing houses on settlement day. Because of this perceived risk, clearinghouses increased the amount of collateral they required for trades related to GameStop and other “meme stocks” on January 28th, 2021.

To protect themselves from running out of cash needed to post the new higher collateral requirements, brokerages decided to limit the purchasing of GameStop shares and options, only allowing their users to close out their already open GameStop positions.

Why did Robinhood’s actions cause so much controversy?

Robinhood traders, either were unaware of the increased collateral requirements that had caused Robinhood to restrict trading on GameStop or simply didn’t believe that that was the reason behind the restrictions. WallStreetBet redditors had a different, more sinister theory as to why restrictions on GameStop had been placed. In order to understand their theory we have to reference back to January 25th, 2021 when Citadel LLC provided Melvin Capital with a $2 Billion investment. As was explained earlier, Citadel is the largest options market maker in the US and one of the largest stock market makers in the US. Brokerages like Robinhood earn a significant amount of revenue from selling their order flow to Citadel. To be specific, for the three months ended March 21, 2021, Robinhood made 27% of it’s revenue from selling it’s order flow to Citadel LLC. That can be seen here in Robinhood’s IPO Prospectus document.

Since Citadel is such a large source of revenue for Robinhood, redditors concluded that it would be to Robinhood’s advantage if Citadel’s investment in Melvin Capital was successful. At this point many WallStreetBet redditors believed Melvin Capital was still short GameStop. Redditors believed that Robinhood would do anything to help Citadel, including helping Melvin Capital, since Citadel was invested in them. To them, Robinhood restricting the purchase of GameStop while at the same time fully allowing users to sell their shares, seemed like a great way to artificially cause GameStop’s share price to drop. This in turn would help Melvin Capital’s short position on GameStop and thereby help Citadel’s investment in Melvin Capital.

Here are some of the most upvoted reddit posts on the topic from January 28, 2021.

Reddit’s theory is unlikely to be true as Robinhood, in order to cover the higher collateral requirements, had to raise $3.4 Billion in funding in the days following January 28, 2021. Here is a CNBC article that talks about Robinhood raising the funds needed to cover it’s increased collateral demands.

Here is how Keith Gill’s investments were doing after the January 28, 2021 move.

Keith Gill posted his daily portfolio update. This post was upvoted 284,000 times, even more than his previous post.

His portfolio had dropped significantly from the day before and was worth $33.170 Million at this point, $14.803 Million less than what it was worth the day before. This post got even more upvotes than the previous one when his portfolio was worth almost $50 Million. This is because redditors took comfort in knowing that even on a day when GameStop had dropped more than 40%, Keith had held on to all of his GameStop investments from the prior day.

Here are some of the most upvoted comments on his update post:.