2021 Meme Stock Mania (GameStop)

The GameStop short squeeze was a uniquely 2021 phenomenon: retail investors organized through Reddit's r/WallStreetBets subreddit identified that GameStop (GME) had short interest exceeding 140% of its float, meaning more shares were shorted than existed. Coordinated buying, fueled by zero-commission trading on Robinhood and stimulus checks, forced shorts to cover at escalating prices. GME rose from $17 at the start of January to an intraday peak of $483 on January 28. Melvin Capital, which had a large short position, required a $2.75B capital injection and eventually shut down in 2022. Citadel and Point72 supplied emergency funding. Robinhood restricted buying of GME and other meme stocks on January 28, citing clearinghouse collateral requirements, a move that destroyed the app's reputation with retail traders. The episode was a lesson in market structure. Clearinghouse margin requirements scale with volatility, which can force brokers to restrict trading during extreme moves. Short interest data became weaponized when retail trading flows could be coordinated. Gamma squeezes, where options dealer hedging amplifies moves, became a core part of market structure. The post-2021 regime saw reduced short interest in vulnerable names, permanent changes to T+2 settlement (moved to T+1 in 2024), and a structurally changed view of retail flows.