What You'll Learn
- Short interest can exceed 100% — when more shares are shorted than exist, the stage is set for a nuclear squeeze
- One man saw it first — Keith Gill (DeepFuckingValue) spent months building the case before anyone listened
- The squeeze had two engines — short sellers covering AND gamma from call buying created a feedback loop
- Robinhood became the villain — when they halted buying, they may have saved Wall Street and enraged a generation
- The system was exposed — naked shorting, payment for order flow, and market structure became dinner table topics
- "Meme stocks" changed markets forever — retail coordination is now a force hedge funds must respect
The Trade Heard Around The World
It was supposed to be a routine trade. GameStop, the mall video game retailer, was dying. Everyone knew it. The company was the next Blockbuster — a relic of the physical media era being steamrolled by digital downloads.
Hedge funds knew it. They shorted the stock relentlessly. By January 2021, short interest had reached 140% of the float. More shares were borrowed and sold short than actually existed in the public market.
The smart money had made their bet. GameStop was going to zero. And they would collect billions when it did.
They didn't count on Reddit.
"What happened with GameStop wasn't about fundamentals. It was about mathematics. When you short more shares than exist, you've created the conditions for your own destruction. All it takes is someone to light the match."
— Anonymous Hedge Fund Manager, 2021
On January 28, 2021, GameStop traded as high as $483. Melvin Capital, one of the most successful hedge funds of its era, lost 53% in a single month. They required a $2.75 billion emergency bailout from Citadel and Point72 just to survive. They would eventually close their doors entirely.
A generation of new traders had done something that seemed impossible: they had beaten Wall Street at its own game.
This is how it happened.
The Dead Company That Wouldn't Die
To understand GameStop, you have to understand what it was — and what made it a short seller's dream.
GameStop was a specialty retailer that sold video games, gaming merchandise, and consumer electronics. At its peak, it had over 5,500 stores worldwide. But by 2019, the business model was in terminal decline:
Digital Downloads
Why drive to a mall when you can download games instantly? Digital sales were eating physical retail alive.
Retail Apocalypse
Malls were dying. GameStop's store-heavy model was bleeding cash. Every lease renewal was a death sentence.
COVID-19
The pandemic accelerated every negative trend. Stores closed. Foot traffic vanished. The death spiral accelerated.
Declining Revenue
From $9.5 billion in 2011 to $5.1 billion in 2020. The trajectory was unmistakable. Zero was coming.
The short thesis was bulletproof. Or so it seemed.
Here's what the shorts missed: GameStop wasn't a pure value trap. It had no debt on its balance sheet by late 2020. It had significant real estate. And it had a fanatically loyal customer base — gamers who grew up trading games at their local store.
Most importantly, it had just gotten a new board member: Ryan Cohen.
The Timeline to Madness
From Ryan Cohen's first purchase to the historic peak: seven months. From the first viral Reddit post to chaos: sixty days. Once the squeeze began in earnest, the move from $40 to $483 took just two weeks.
The Cat Who Saw Everything: Keith Gill's Impossible Thesis
Every great trade starts with someone seeing what others can't. For GameStop, that person was Keith Gill.
Gill was a 34-year-old financial advisor from Massachusetts. By day, he helped clients at MassMutual manage their retirement savings. By night, he was DeepFuckingValue on Reddit and RoaringKitty on YouTube.
In 2019, while everyone else saw a dying retailer, Gill saw something different. He saw:
Extreme Pessimism = Opportunity
Short interest over 100% meant everyone had already bet against it. All the sellers had sold. Who was left to push it lower?
Asset Value Ignored
GameStop had more cash per share than its stock price. The market was literally saying the business was worth less than the money in its bank account.
Console Cycle Catalyst
New PlayStation and Xbox consoles were launching. Every console cycle drove a surge in GameStop's business as gamers upgraded.
The Short Squeeze Setup
If anything — anything — went right, shorts would be forced to cover. And with 140% short interest, the covering would be violent.
In September 2019, Gill started buying. His initial position: $53,000 in GME stock and call options.
He posted his position on Reddit's WallStreetBets forum. People mocked him. Called him an idiot. Said he was throwing his money away.
He kept posting. Every month. Same format. Position still open. Losses sometimes. Small gains sometimes. Never selling.
"I like the stock."
— Keith Gill, testimony to U.S. Congress, February 2021
Those four words would become the rallying cry of a movement. But first, Keith Gill had to wait. And hold.
DIAMOND HANDS ORIGIN STORY
The term "diamond hands" — meaning an unwillingness to sell under any circumstances — emerged from WallStreetBets during this period. The opposite, "paper hands," meant someone who panics and sells. Keith Gill held for over a year before the squeeze. The ultimate diamond hands.
The Chewy Guy: Ryan Cohen Changes Everything
Keith Gill had the thesis. But the thesis needed a catalyst. It came in August 2020.
Ryan Cohen had built Chewy from a pet food startup into a $40 billion e-commerce giant that competed with Amazon. He'd sold to PetSmart in 2017 for $3.35 billion. He understood how to transform traditional retail into a digital powerhouse.
When Cohen started buying GameStop shares, the thesis changed from "undervalued dying retailer" to "potential transformation story."
In November 2020, Cohen published a scathing letter to GameStop's board. He called them out for their "obvious reluctance to pivot" and demanded they transform the company into a technology-driven e-commerce platform.
On January 11, 2021, GameStop announced Ryan Cohen would join the board of directors.
The stock jumped 13% that day. It was just the beginning.
For the shorts, this was catastrophic. Their thesis depended on GameStop going to zero. But if Ryan Cohen could pull off another Chewy-style transformation, zero was off the table. They would have to cover their shorts eventually.
And with 140% short interest, "eventually" was going to be a massacre.
Why 140% Short Interest Creates Nuclear Conditions
Let's pause and explain why 140% short interest is so dangerous.
When you short a stock, you borrow shares from someone and sell them. Eventually, you must buy shares back to return to the lender. If the stock goes down, you profit. If it goes up, you lose money — with no limit on potential losses.
Here's the critical math:
The Float
GameStop had approximately 70 million shares outstanding, with about 50 million available for trading (the "float").
Shares Shorted
Over 70 million shares had been borrowed and sold short. More than 100% of the available shares.
The Impossible Math
How can you short more shares than exist? Through re-lending. Broker A lends to Shorter B, who sells to Buyer C, whose broker then lends those same shares to Shorter D...
The Squeeze Setup
If shorts need to cover but more shares are owed than exist, they're bidding against each other. Price goes to infinity.
This is the nightmare scenario for short sellers. And GameStop's short interest meant that if the stock started rising, shorts would be forced to buy. Their buying would push the price higher. More shorts would be forced to buy. Rinse and repeat.
This is called a short squeeze. And GameStop had the most explosive setup in market history.
"When you have more shares short than actually exist, you've created a game of musical chairs where there aren't just too few chairs — there are negative chairs. Someone is going to get destroyed."
— Options Market Strategist
Ignition: The Squeeze Begins
January 13, 2021. GameStop closed at $31.40.
Something had changed. Volume was exploding. Social media was on fire. WallStreetBets had grown from a niche subreddit of degenerates to a movement of millions.
The rallying cry was simple: "Buy GME. Hold GME. Diamond hands. This is not financial advice."
And they did. In massive numbers.
From $40 to $483: Two Weeks of Chaos
The squeeze didn't build gradually. It exploded. Each day, short sellers who couldn't take the pain covered their positions, driving the price higher and forcing more shorts to cover. The feedback loop was self-reinforcing — until Robinhood pulled the plug.
The daily moves were staggering:
- January 13: $31 → Surge begins
- January 22: $65 → Up 110% in a week
- January 25: $77 → Elon Musk tweets "Gamestonk!!"
- January 26: $148 → Up 92% in one day
- January 27: $347 → Up 134% in one day
- January 28: $483 intraday high → Then Robinhood halts buying
In just fifteen trading days, GameStop had risen from $40 to nearly $500. A gain of over 1,100%.
Keith Gill's $53,000 investment was now worth over $48 million.
The Hidden Engine: Why Gamma Made It Worse
Here's what most people don't understand about GameStop: the short squeeze alone wasn't enough. The really explosive moves came from gamma.
When millions of retail traders bought call options on GameStop, they weren't just betting the stock would go up. They were forcing market makers to hedge.
The gamma squeeze worked like this:
- Retail buys out-of-the-money calls (cheap lottery tickets)
- Market makers sell those calls and hedge by buying shares
- Their share buying pushes the stock higher
- The calls become more valuable, their delta rises
- Market makers must buy more shares to stay hedged
- The stock rises more. Repeat.
Now combine this with the short squeeze: shorts covering are also buying shares. You have two massive mechanical forces both pushing the stock in the same direction.
The result: vertical price action unlike anything seen in modern markets.
THE DOUBLE SQUEEZE MECHANICS
Short Squeeze: Shorts buying to cover losses → forced buying pressure
Gamma Squeeze: Market makers buying to hedge calls → mechanical buying pressure
Combined Effect: More buying pressure than sellers could possibly provide → parabolic price action
The Kill Switch: When Robinhood Stopped The Game
January 28, 2021. 9:30 AM Eastern. Markets open.
GameStop gaps up immediately, hitting $483 in premarket trading. The squeeze appears unstoppable. WallStreetBets is euphoric. Melvin Capital is bleeding out.
Then, at approximately 9:00 AM, Robinhood restricts buying of GME. Users can sell their shares but cannot buy new ones.
The buy button was removed.
"When the casino is about to lose, they change the rules mid-game."
— u/DeepFuckingValue community response
Other brokerages followed: TD Ameritrade, E*Trade, Interactive Brokers, WeBull. All restricted or halted buying of GME and other "meme stocks" like AMC, BlackBerry, and Nokia.
The effect was immediate and devastating:
- 9:00 AM: Robinhood restricts buying
- 10:00 AM: GME collapses from $483 to $250
- 2:00 PM: GME at $132 — down 72% from the high
- Close: $193 — still massive losses
Robinhood's CEO, Vlad Tenev, would later testify to Congress that the restriction was due to collateral requirements from the DTCC (Depository Trust & Clearing Corporation). The unprecedented volatility required Robinhood to post billions in additional collateral — money they didn't have.
Critics saw something different: market manipulation to protect hedge funds. Robinhood's relationship with Citadel (a major market maker and Melvin Capital's emergency backer) became the subject of congressional inquiry.
The Web of Relationships
Robinhood received payment for order flow from Citadel. Citadel bailed out Melvin Capital. When Robinhood halted buying, the beneficiary was Melvin. Coincidence? Congress held hearings. No one went to jail.
The Aftermath: Who Won, Who Lost, What Changed
When the dust settled, the GameStop saga had produced clear winners, losers, and permanent changes to market structure.
THE LOSERS
Melvin Capital
Lost 53% in January 2021. Required a $2.75 billion emergency bailout. Eventually liquidated entirely in 2022, returning whatever capital remained to investors. Gabriel Plotkin's reputation destroyed.
Short Sellers Broadly
Estimated $13+ billion in losses across all GME shorts. Many funds reduced short exposure permanently. The practice of shorting over 100% of float became radioactive.
Late Retail Buyers
Those who bought at $400+ suffered massive losses when the stock crashed. Many lost their life savings chasing the momentum. Some held for years hoping for recovery.
Robinhood's Reputation
"Democratizing finance" became a sick joke. The company became synonymous with protecting Wall Street. IPO flopped. Stock price collapsed.
THE WINNERS
Keith Gill (DeepFuckingValue)
Turned $53,000 into approximately $48 million at peak. Testified before Congress as a hero to retail traders. Never wavered on his thesis. Became a legend.
Ryan Cohen
Became GameStop chairman. His stake became worth billions. Whether or not GameStop's transformation succeeds, he won the battle.
Early Reddit Traders
Those who bought below $40 and sold near the peak made life-changing money. Some turned thousands into millions. Diamond hands rewarded — if they sold.
GameStop The Company
Issued new shares near the peak, raising over $1 billion in cash. Eliminated all long-term debt. Bought time for the transformation story.
The Lessons That Matter
GameStop wasn't just a trade. It was a market structure stress test that revealed everything wrong with modern markets. Here's what every trader should remember:
Short Interest Over 100% Is a Time Bomb
When more shares are owed than exist, any buying pressure creates a feedback loop. This situation should never exist, yet it did. Watch for it.
Gamma Amplifies Everything
The "gamma squeeze" was as powerful as the short squeeze. When retail traders buy calls en masse, they're not just betting — they're creating mechanical buying pressure through dealer hedging.
The Rules Can Change Mid-Game
When Robinhood halted buying, they proved that market access isn't guaranteed. Brokerages can restrict trading when it threatens the system. Plan for this.
Social Media Is Now A Market Force
Coordinated retail buying, fueled by Reddit and Twitter, can move stocks in ways previously impossible. Institutions now monitor social media for positioning signals.
Conviction Matters More Than Consensus
Keith Gill held his position for over a year while everyone mocked him. He did his research. He had conviction. When the world caught up, he was already rich.
Timing Is Everything
Early buyers made fortunes. Late buyers lost everything. The difference between financial freedom and ruin was sometimes just days. Don't chase.
The Legacy: Markets Changed Forever
GameStop's impact extends far beyond one stock. It fundamentally changed how markets operate:
MARKET STRUCTURE CHANGES
- Short disclosure: Increased scrutiny on short positions and potential naked shorting
- Settlement times: Push to reduce T+2 settlement to reduce collateral requirements
- Payment for order flow: Congressional hearings and regulatory attention on PFOF practices
- Social media monitoring: Institutions now track Reddit, Twitter, and Discord for retail positioning
CULTURAL SHIFTS
- "Meme stocks" became a category: AMC, BlackBerry, Bed Bath & Beyond, and others joined GME as retail battlegrounds
- Retail traders became a bloc: Collective action, once impossible, is now a market force hedge funds must respect
- "Diamond hands" entered the lexicon: Holding through volatility became a badge of honor (for better or worse)
- Trust in markets declined: The Robinhood halt proved that the game can be rigged when the house is losing
"GameStop wasn't the first short squeeze. It won't be the last. But it was the moment retail traders realized they had power — and the moment Wall Street realized they had to take that power seriously."
— Market Historian
Epilogue: Where Are They Now?
The GameStop saga continues to evolve:
Keith Gill
Went silent on social media after the Congressional hearings. Reportedly still holds GME shares. Became a folk hero. A movie ("Dumb Money") was made about him.
Ryan Cohen
Became GameStop Chairman. Attempted to transform the company into a technology/e-commerce platform. Launched NFT marketplace. Results: mixed but ongoing.
Melvin Capital
Gabriel Plotkin shut down the fund in 2022 after continued losses. The hedge fund that was short GME became a cautionary tale for the industry.
GameStop
Still trading, still volatile. The "apes" (loyal shareholders) continue to hold. Whether the transformation thesis plays out remains to be seen.
The story isn't over. GameStop became more than a stock — it became a symbol. A symbol of retail trader power, of market structure fragility, and of what happens when the internet decides to fight back.
Whether you made money, lost money, or just watched from the sidelines, GameStop changed everything. Markets will never be the same.
The revolution was not televised. It was posted on Reddit.
THE FINAL TRUTH
GameStop proved that markets aren't perfectly efficient. They can be squeezed, they can be manipulated, and they can be broken. The question isn't whether another GameStop will happen — it's when. And whether you'll be on the right side of it.