Ping Li

Huanan Chen

Peiyao Zhang

In January 2021, as Ryan Cohen, the founder of Chewy, the largest pet e-commerce company in the United States, joined the board of directors of GME, news was announced that GME would be strategically transformed to become the Amazon of the gaming industry. After this announcement, many shareholders on the WallStreetBets (WSB) forum took the long position of GME stocks and call options, causing their prices to soar in a short period of time. However, considering the fundamentals of GME, financial institutions in Wall Street thought the stock price of GME deviated from its real value too much, and thereby sold call options on GME stocks. However, due to the group action of retail long investors, the stock price of GME didn't decline as expected by short institutions, which resulted in the short squeeze and gamma squeeze, and short institutions experienced huge losses in a short period of time. This so-called "GameStop short-squeeze event" aroused widespread attention and discussion among industry and academy. What is the role of short squeeze and gamma squeeze in this event? How should option sellers control their risk? Should the organized short squeeze by retail investors be regulated? This case will discuss these issues.

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