Thought Leadership

What Business Appraisers Can Learn from the GameStop Saga

By:  Joseph W. Thompson, CFA, ASA

The phenomenon surrounding GameStop Corp (NYSE: GME) over the past several months has garnered significant media attention, regulatory review, numerous lawsuits, and political discourse. The focus in most media coverage has been on “squeezing the short sellers,” but professional options-trading firms have likely suffered significant losses and contributed to the run-up in GME stock price through forced hedging. While the squeezing of short sellers of GME stock likely had some impact, the overall net change in GME stock shorted is not nearly as significant in size as the increased exposure to GME stock from exchange-traded options.

This article will not cover the crowd-sourcing aspect as significant media coverage has already been devoted to that topic. Instead, this article provides an overview of the mechanics that drove the losses for the short sellers and a more in-depth review of the options trading that exacerbated the run-up in GME’s stock price during January 2021. Therefore, an appropriate subtitle for this article can well be: “Picking Up Nickels in Front of Bulldozers: How Options Trading Firms Lost to the Reddit GameStop Crowd.”

The lesson for appraisers in this saga is to be aware of potential pricing issues when using guideline public companies in the Reddit orbit. In the short term, the underlying price may not be representative of its “fundamental value” during the volatile period.

Click here to read the full article [pdf].

Reprinted with permissions from Business Valuation Resources, LLC.