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What is ‘The Big Short’? What Does It Have to Do with GameStop?

stock market on wall street
Photo by Patrick Weissenberger on Unsplash

What do Margot Robbie and a bubble bath have to do with short selling? You might be asking this question after seeing references across the internet to Margot Robbie explaining stocks in the bathtub in relation to the GameStop stock. This actually refers to a scene from “The Big Short,” one of two Wall Street-centric films in which Robbie has been featured (the other being “The Wolf of Wall Street”).

What is The Big Short?

In 2015, the nonfiction book “The Big Short: Inside the Doomsday Machine” by Michael Lewis, was adapted into the multiple Academy Award-winning film, “The Big Short,” directed by Adam McKay. A dramatization of the events leading up to the financial crisis of 2007 – 2008, the film follows three hedge funds and their roles in bursting the U.S. housing bubble.

Starring the crème de la crème of Hollywood actors, this film features an original approach to defining stock market terminology for the viewer. Assuming that the majority of the audience would not be acquainted with the ins-and-outs of the stock market, a range of celebrities break the fourth wall to break down financial concepts in an accessible way.

Most applicable to the GameStop stock situation is Robbie’s breakdown of short selling and subprime mortgages. Sitting in a bubble bath and sipping on champagne, Robbie explains these concepts in a down-to-earth and sometimes crass way while frequent editing cuts visually illustrate the obfuscation surrounding the stock market. 

Short Selling and GameStop

Short selling is an investment method that gambles on the decrease in the value of a stock or security. Investors borrow stocks or securities, which are projected to decrease in value. These investors sell their borrowed shares at the market price in the hopes that the price will decrease before they have to buy them back and return them, generating a profit.

GameStop stocks were projected to fall in value as the business faced decreased revenue due to the COVID-19 pandemic. Hedge funds were thus engaged in short-selling these stocks. However, subredditors from r/wallstreetbets invested in GameStop stocks, causing a short squeeze. A short squeeze is when the value of stocks that are being short sold increase rather than decrease in value. The hedge funds that had borrowed those stocks then lost money on them since they could only buy them back at a higher price than for what they sold them.

How Relevant is “The Big Short?”

Since “The Big Short” explains financial terminology in an accessible way while also revealing how Wall Street often views the stock market as large-scale gambling, the comparison to the GameStop stock situation is helpful in understanding how and why this situation happened. 

To learn more about how short selling works and what happened with the GameStop stocks, it is probably good to branch out and investigate other explanations more detailed than the one presented by Robbie, but it is definitely an informative introduction to a concept not widely understood. So, next time you see a reference to GameStop, short selling, and Robbie, you know that this is a reference to “The Big Short,” not “Wolf of Wall Street,” and you can explain short selling to your friends from your own unconventional location!

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