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Short squeeze: GameStop, AMC Entertainment and other stocks see large gains wiped away as trading platforms place limitations on purchases

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Numerous low valued companies have seen a sudden inflation in their stock values this week as members of a Reddit community, r/WallStreetBets, caused a short squeeze in the market. The gains of this influence have started to wipe away as trading platforms like Robinhood, TD Ameritrade and others placed restrictions on trades of those companies.
The Tiger reached out to Clemson professors to explain the market conditions this week.
“Most of the stocks that have been targeted were heavily shorted, expecting the stock prices to fall,” explained Travis Box, Clemson assistant professor of finance. “With anything you want to buy it and then sell it at a higher price. With a short sale, it’s the same thing, just in an opposite order. You’re selling it at a high price now in the hopes of buying it back later at a lower price.”
After users on Reddit realized that these companies were being shorted, they pounced on the opportunity to buy the stock. As the stock value rose, short sellers were forced to invest more.
“You have this guarantee that this large group of people are going to have to buy the stock. They sold it already and they’re going to have to buy it later,” explained Box about options trading. 
On Wednesday, Jan. 27, stocks of companies such as GameStop ($GME) reached an all-time high share price of $483.00 after hovering around $20 earlier this year. Thursday’s restrictions began to deflate these gains, closing 44.41% lower than the previous day.
Two lawmakers, Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Ted Cruz (R-TX), voiced their contempt on Thursday against apps that placed restrictions on buying but not selling.
In a statement released midday Thursday, Robinhood announced its limitations on certain stocks. “In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG.”
Robinhood later sent an email to its customers Thursday evening, defending its decision with plans to open limited buys of the securities Friday morning. “We’ll continue to monitor the situation and may make adjustments as needed … As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits.”
WeBull, another online trading platform, had also placed limits on certain companies, but rolled back those restrictions before market close on Thursday. The company announced on Twitter that GME, AMC and KOSS are no longer restricted.
The Securities and Exchange Commission released a statement on Wednesday, writing “We are aware of and actively monitoring the on-going market volatility in the options and equities markets … we are working with our fellow regulators to assess the situation.”
To anyone concerned about their investments into GameStop or similar companies, Box is confident it is not market manipulation.
“If a Clemson student has been bragging about their call options from GameStop, I would not expect a call from the SEC,” stated Box, qualifying with a word of caution. “If the SEC can figure out, early on in this process, a situation where people were intentionally taking positions and trying to manipulate prices, that’s a different story.”
An update was made on Jan. 28 to add the statement Robinhood released Thursday evening.

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