Let’s say you run a tennis ball company in California that rakes in $100m/year in net income.
In California, you’ll pay a state income tax (8.84% of net income) — and possibly an alternative minimum tax (6.65%) — in addition to the federal corporate tax rate of 21%.
By incorporating in Delaware, though, you can likely save millions in taxes with something called the “Delaware loophole.”
In Delaware, intangible assets — think trademarks, copyrights, and leases — are free from taxation. Companies will often transfer these assets to a Delaware subsidiary and pay their own subsidiary for the rights to use said assets.
$GME was first pitched as an investment on r/WallStreetBets about 2 years ago, but the current craze built up over the past 12 months.
Members on the subreddit r/WallStreetBets believed that GameStop, with 5k+ brick ‘n’ mortar locations, could turn around its fortunes by going digital.
On Aug. 31, 2020, Ryan Cohen — the billionaire founder of pet company Chewy — bought up a big position in $GME (he now owns 10%+ of it) with plans to modernize the company.
In the months since, a number of prominent hedge funds (Citron, Melvin Capital) revealed they were betting against (AKA short selling) $GME.
Typically in short selling, you: 1) borrow a stock; 2) sell it to a buyer; and 3) if the price of the stock falls, you can buy it for a cheaper price you sold it at and return the stock to the person who lent it to you.
One risk of short selling is called a “short squeeze.” Since you have to eventually return the stock you borrowed, problems can arise if there is a limited supply of the stock.
In a “short squeeze,” the underlying stock will get bid up as short sellers try to get their hands on stock that they have to return.
Options trading — the right, but not obligation, to buy a stock at a certain price — is also driving $GME up as institutions that sell these options are buying $GME stock to hedge their position.
$GME stock is on an upward tear as these market mechanics play out and r/WallStreetBets traders coordinate their efforts.