Shares in GameStop and BlackBerry surged in early trading in New York on Monday as amateur online traders continued their assault on professional investors betting that the stocks were overvalued.
Gaming retailer GameStop rocketed more than 85 per cent in the opening hour of trade, building on a rally on Friday that exceeded 100 per cent at its peak.
Shares in mobile handset maker BlackBerry soared nearly 40 per cent, taking the price to more than double their level from the start of the year.
Both companies are popular among amateur traders who share ideas and tips on the r/wallstreetbets message board on the website Reddit. Other companies such as Palantir have also been popular tips.
Friday’s drama in GameStop shares came after short seller Citron Research said the value of the company should halve from $40 as it was “pretty much in terminal decline”. Retail trading enthusiasts retaliated by buying options in GME, helping to push the stock over $65.
Small investors can influence share prices by buying large amounts of call options, which give the user the right but not the obligation to purchase a share later at a fixed price.
Typically, this means that wholesale brokers such as banks need to purchase shares on the open market to hedge their own risks, in the event that the stock price moves towards the strike price of the option. Particularly in smaller stocks, this hedging can have an outsized impact on prices.
The activity by day traders has been fuelled in part by the brokers moving to commission-free trading and a sharp rebound in stock market valuations since last March’s sharp sell-off.
“As someone who started trading stocks in the late 90s in college, I would always remember watching when the small retail trading groups would get crushed by hedge funds and savvy short sellers,” said Edward Moya, senior market analyst with Oanda, a foreign exchange specialist, in New York.
“What happened with GameStop’s stock is a reminder of how times are changing. A new army of traders are not focused on valuations, but rather by momentum opportunities they see from Reddit’s Wall Street Bets, YouTubers, TikTok or Robinhood.”