Millennials and Gen-Zers are finding a new career—trading stocks online. One of the quirky results of millions of people staying at home all day long is the fast-growing emergence of young, novice “investors” trading stocks online. Many have flocked to Robinhood, a trading app that’s built like a video game. I’ve opened an account and bought stocks. The experience is much more user-friendly and fun compared to my stodgy Charles Schwab and Vanguard mutual funds accounts.
The prevailing investment style of the predominantly Gen-Z and Millennials is to buy momentum stocks. This entails finding a fast-moving stock and jumping on the bandwagon. The key is to pop off before the stock falls.
A large segment of the active traders dispense with purchasing shares and buy cheap, risky out-of-the-money calls, which offers them significantly more leverage and outsized gains. WallStreetBets is the go-to subreddit for people interested in the rush of trading and the camaraderie of fun-loving, goofy, foul-mouthed and self-deprecating colleagues. Their buying frenzy of GameStop stock and call options offers a window into their activities.
The army of young WallStreetBets members had bought big amounts of GameStop stock. The wave of buying caused a short squeeze—as short sellers needed to buy back stock to stem their increasing losses. The additional buying by the Wall Street professionals sent the stock soaring. Redditors giddily celebrated their victory over the professionals with emojis and trash-talking.
Now Reuters has reported the following:
Top securities regulator in Massachusetts thinks trading in GameStop Corp (NYSE:GME) stock, which skyrocketed for a fourth straight day, suggests there is something “systemically wrong” with the options trading surrounding the stock, Barron’s reported on Tuesday.
The video game retailer’s after-hours surge added to a 93% jump during Tuesday’s trading session, with the company’s stock propelled by traders on Wallstreetbets, many of them buying volatile call options.
“This is certainly on my radar,” William Galvin, secretary of the Commonwealth of Massachusetts, told the magazine. “I’m concerned because it suggests that there is something systemically wrong with the options trading on this stock.”
GameStop and the office of the securities regulator in Massachusetts did not immediately respond to Reuters’ request for comment outside business hours.
The stock surged 50% in extended trade after Musk tweeted, “Gamestonk!!”, along with a link to Reddit’s Wallstreetbets stock trading discussion group. “Stonks” is a tongue-in-cheek term for stocks widely used on social media.
GameStop has surged more than seven-fold to $147.98 from $19 since Jan. 12, spurring concerns over bubbles in stocks that hedge funds and other speculative players bet will fall in value.