The GameStop stock surge began for a legitimate reason: The company announced on January 11 it had added three new directors to its board, including Chewy co-founder Ryan Cohen. Options are bets investors place on a stock, allowing them to buy (a "call" option) or sell (a "put" option) at a particular price. Investors can place relatively inexpensive options bets and sell those options as they rise in value when the stock price gets closer to their wager. In the case of GameStop and other stocks targeted by WSB, traders keep buying options, forcing the investors selling those options to hedge their bets by buying up GameStop stock. With a mega short-squeeze taking place, short-sellers began to hedge their bets, buying more stock to make up for their mounting losses.

Source: CNN January 27, 2021 18:59 UTC