There were roughly between 20 to 30 million actively traded GME stocks and 71 million short positions who all need to buy stock. That, clearly, is a lot of demand and not much supply.
r/wallstreetbets (a sub-reddit where Retail Investors discuss about stocks on social media) noticed this and speculated that if they bought the stock and held their position, they could result in the price to go up and trigger a short squeeze. So they all, simply, bought shares.
Because they bought shares, the price went up, and the Hedge Fund certainly did not expect this. They (Hedge Funds) essentially sold shares at $20/each, expecting to buy them back for their lenders at $5/each or even less to make some profit – but now the shares are at over $300/each!
Let’s do some simple math.
If, Hedge Fund sold 10 shares at $20, they gained $200. But now they have to buy them back at $300 each, which would cost them $3000. Given that they are Hedge Fund (Big Money People), they don’t transact in mere 50s or 100 shares. They play BIG! They buy thousands or even millions.
The Hedge Fund has to give back the shares within a certain time frame. They can’t sit around and wait for ‘favorable’ time.
That is what happened. If you own GME shares, then this is your year!