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A key part was the option leverage - it allowed the small guy to force purchases in Gamestop by the market makers and they ran out of shares to borrow. Gamestop had a rather small market cap and the short percentage was very high - the funds that piled into it took a risk by shorting so much and they got burned. All the affected stocks were relatively small ones in terms of free float and in those cases a short squeeze can be a lethal danger. The funds just got greedy and were caught at their own game, I posted before about Porsche outwitting the short funds a while back - the Gamestop case is extraordinary but in the end its just the market correcting itself. Hedgefunds shorting stocks had it too easy, they would almost at random pick a smaller stock and crush it exiting quickly with a buck fleeced from retail investors - the Gamestop story was very far from any in depth analysis that justified a short on fundamental grounds. It was a play on a market sentiment that bricks & mortar will fall to the internet and corona. It didnt consider the stock wasnt liquid enough for the size of the short position : GME shares outstanding ~70M - valued before all this stuff happened at 5$ or 350M 27% were institutionally held so not tradeable. Left value of ca. 245M 113% of the stock was shorted (and I dont think this was even the highest level) It doesnt take a genius to figure out that this setup is vulnerable to a squeeze. So how do we go about that? Well its rather easy - Gill actually encouraged buying far OTM LT options for nickels and dimes. This forced moderate (delta related) purchases by the MM but in the overtensioned short market it became a problem - where were these shares supposed to come from? So lets see how that works, lets presume they piled into 10 delta calls which cost a dime each. To affect say 1% of the free float which at best was 50M shares (in reality it was likely much smaller) - you need to get 500,000 shares purchased. So if you manage to get 50,000 contracts opened you are good (remember option leverage is 1 contract for 100 shares but 10 delta means only 10% are bought). That is in fact only 500,000$ if they trade for a dime - there is a flywheel effect on this as the squeeze starts to bite the price accelerates and delta hedging will increase the amount of shares the MM need to cover positions. So 100 retail investors putting up 5K each could do the trick - hedgefunds operate in much the same way in wolfpacks - what played an additional role is that GME had been flat for so long the original option prices were completely deflated even for longer term calls. With 113% short of total float what could a 1% purchase do? Your guess is as good as mine but we saw the results - what made matters worse is that #MeToo funds with even less sense than Melvin started to short the stock thinking they saw an easy gain. These were not the most reliable of shorting parties and when they started to bleed they ran away real fast thereby giving the old flywheel yet another spin. Thats why on a position where you would think the risk would be what? 20-30% of your short position? The funds managed to lose 5B$ and even then they were lucky, the VW Porsche case showed that in a short squeeze prices tend to infinity - Melvin & Co literally could have lost an infinite amount of $$$. Whether a stock is valued correctly or under/overvalued depends as much on fundamentals as on offer/demand. There are plenty of quite good stocks trading at low prices due to being unpopular similarly your favorite TSLA is trading at some absurd levels.

There is a very real danger to the clearing houses , and it's customers, during an extreme case like this. When I was trading on Comex in the 80's, during one of the gold short squeezes, one of the main clearing firms that cleared most of the members went bust and it affected accounts held there which caused increased regulation. I think this was the catalyst for the creation of the SPAN margining system that is still used today for futures/futures options. What caused the squeeze, during this one event, was one floor trader who over the past year of a bear market in gold, just sold OTM calls every month and they expired worthless. He kept doing it, and increasing his size, where he eventually reached the exchanges "member limit" of 4000 options. When that wasn't enough for him he purchased 3 more seats for his wife, brother in law etc. so he could get to 12,000 short OTM calls. At his peak he had amassed around $50 million which, in 1983 for an individual floor trader, was a LOT of money for 1 year. You can guess how this ended up. Did he really think the metals dealers "upstairs" wouldn't know what is happening? I remember it clearly. Gold, which was around $240, had had a "normal" day's trading range of $2-$3. Then one day it was up $10 which was out of the ordinary and he sold more calls. The next day it was up $30 and went into a GME type parabolic rise to $500+ over the next few days causing a $26 million margin call. He left his clearing house "holding the bag" and was apprehended at JFK trying to flee the country with suitcases full of cash. Here's the story..... Whether it's the "Optionsellers/Cordier" story, GME, or this one, it's comes around with different players when the last memory fades. https://www.latimes.com/archives/la-xpm-1985-05-20-fi-16632-story.html

@TrustyJules a fascinating story indeed, thanks for sharing. To be honest, I didn't follow the story too closely. I don't really care how much money other people make. But in my opinion, the big picture is still the same, no matter how they did it. It was a pure short squeeze, but Gill continued to claim that the stock is undervalued all the way up and encouraged his followers to buy while selling his holdings to them. And if it was a protest, I'm really not sure what exactly they are protesting against. It became very popular to hate "wealthy" people. But some people "forget" how many jobs those wealthy people like Elon Musk or Jeff Bezos create and how some of them change the world. The bottom line is that the only one who was guaranteed to make money in this story was Gill. For him it was a no risk trade. For everyone else it was a pure gamble. I feel sorry for people who bought the stock at $400+, but at least it should be a good lesson for them.

Let me get this straight. This guy encouraged all his followers to buy all the way to $483, then sold part of his holdings to those same followers. Last time I checked, it's called pump and dump. One of their goals is to bankrupt the billionaires. But no, it's not about money. What exactly they are protesting against? And if it's not about money, how about Gill gives some of his gains to those poor "investors" who followed his advice and bought GME at $483? And now he advises them not to sell because it's deeply undervalued at $90? Here is a story of one of those "investors": https://www.reddit.com/r/stocks/comments/lazcak/what_gme_has_taught_me_in_36_hours_of_day_trading/ And yea, a "great community", where people respect each other, are civilized and help each other.

Sorry to burst your bubble but any interview with Gill will show you he did it for the money, and good luck to him. Where there is a sweet vengeance is that the pump and dump crowd in the hedgefunds got royally scalped. Shorters arent all bad but those who start a rumour mill and self-fulfill their prophecies are noting short of crooks themselves. They started zeroing in on small companies overlooking the fact that retail investors with options can move share-prices. In fact SO users sometimes move - if only briefly - stock market prices when we pile into a trade. The larger the community the greater your power to leverage - short squeezes are just another expression of the old adage: 'The market can stay irrational longer than you can stay liquid.' courtesy of social media the small guy is now mobilisable in the same manner as the bad shorters used to mobilise vested Wall Street interests. Nothing millennial about it and in fact Gill isnt one either.

This. So each day it might be a different strike.