Reddit traders drove GameStop stock up 275% in a week

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Mall retailer GameStop shares were up more than 57% to $31.40 on Wednesday, marking a steep climb from a year earlier when the stock was valued at just $4.61 a share.

GameStop was languishing below $5 a share as recently as September, but it began to rally after Ryan Cohen, the entrepreneur founder of Chewy.com entered the picture by joining the board, saying the retailer was ripe for a turnaround. On Jan. 11, GameStop said it would add three prominent business people to its board.

Individual small investors — particularly on the Reddit chat forum “WallStreetBets” — began buying GameStop shares and encouraging others to do so. That caught the eye of Andrew Left of Citron Research, a short-selling guru who recommended in a Jan. 21 report that Wall Streeters bet against the stock. By Friday, GameStop had a short interest of 102 percent of its outstanding shares, making it one of the most shorted stocks on the market.

This created a so-called short squeeze that drove share prices sharply higher, according to some analysts. A short squeeze happens when traders respond to an increase in price for a stock they bet would drop by purchasing shares in order to avoid losses.

Many traders believed GameStop’s shares were set to decline. As of the end of last year, short interest in the stock—expressed as a percentage of GameStop shares available for trading—exceeded 138%, making it the second-most shorted company by that metric with a market value of at least $1 billion, according to data from FactSet.

GameStop isn’t the only company to surge. There are a whole group of companies that have been heavily shorted by big Wall Street firms. That makes their shares prone to spike on any good news, as investors who have shorted the stocks are forced to cover their positions by buying back the shares.

Other stocks that are surging include AMC movie chains, tech firms like Blackberry, Plug Power and Nio, a Chinese electric-car maker. A few retailers also are getting pulled in. Bed Bath & Beyond was also up 27 percent on Wednesday, while shares of the Fossil and Express chains were both up 93 percent.