GameStop and Melvin Capital

GameStop and Melvin Capital

Trevor Pugh

20 years: Trading & hedge funds

In this video, Trevor gives us an example of GameStop, a US based video game retailer which is a classic example of hedge fund short selling going wrong occurred early in 2021.

In this video, Trevor gives us an example of GameStop, a US based video game retailer which is a classic example of hedge fund short selling going wrong occurred early in 2021.

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GameStop and Melvin Capital

5 mins 39 secs

Overview

The GameStop incident in early 2021 was a classic example of what can happen when hedge fund trading strategies go wrong. A share trading around $17 had moved higher to briefly touch $500 as a variety of buyers, including many retail buyers on platforms such as Robinhood, bought the stock. Investors were aware that there was a large short base in the shares, in particular from a hedge fund called Melvin Capital, and this encouraged them to buy. Ultimately the share price moved lower again, settling around $50 by the start of February but much damage had been done, and the regulators started to look closely at the whole affair.

Key learning objectives:

  • What happened in GameStop shares in early 2021?

  • Why did the share price behave as it did?

  • What was the impact of the events in GameStop shares?

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Summary
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