American Airlines Stock Surges as Reddit Investors Hope to Replicate GameStop Success

Investors will be watching American Airlines stock closely this morning as markets open, after focus from the Reddit board responsible for the recent surge in GameStop's shares, saw American Airlines' price jump 13 percent yesterday in the first three hours of trading.

The price levelled off before markets closed, but with sustained chatter around AAL on Reddit's r/wallstreetbets community, and speculation the stock could double in price in the coming days, those eager to make a fast return, as well as the hedge funds holding short positions on the stock, will be eager to see how the share price plays out today.

The price of American Airlines's stock rocketed from $15.40 to $17.36 between 9.30 a.m. and 12.30 p.m. yesterday, before closing the day at $16.56. The price increase was credited in part to the attention it had received from the Reddit community, nicknamed WSB, as well as a narrower-than-expected losses report, and hopes of a resurgent airline industry in the wake of the coronavirus.

The stock has certainly caught the attention of the 2 million individual investors estimated to use WSB, who were responsible for the recent explosion in the GameStop price.

One user wrote yesterday: "Thoughts? AAL majorly shorted when all the other airlines aren't. Let's get this bread WSB." AAL is the shortcode for American Airlines stock, while "bread" is slang for money.

A second user wrote: "American Airlines!! After all is said and done we all need to fly to the beach with our new found riches!!! Who better than AAL!!"

A number of individual investors have made huge returns by playing a part in the effort to thwart hedge funds in their attempts to short-sell GameStop's stock. According to one estimate, the rising price of the videogame retailer's shares has cost the established traders who bet on the company's collapse up to $23.6bn.

Meanwhile, users of the WSB thread who profited from the surge in the price of GME stock have posted pictures of receipts for payments paying off their student debt.

Short-selling is the practice of borrowing stock in a company in the belief that its share price will fall, in order to sell the stock on and repurchase it later when the price has dropped in order to fulfil the original loan, ideally leaving a profit for the trader.

However, after individual investors got wind that hedge funds, such as Citron Research and Melvin Capital, were taking this action against GameStop, they used the WSB Reddit thread to arrange a fight back.

Through further investing in GameStop's stocks, WSB board users inflated the share price until it became the best performing of this year so far—costing the hedge funders who had bet on a price decrease dearly.

Now, it seems the WSB board has turned its collective power to causing equal damage to the bottom line of any investors trying to short-sell American Airlines.

"This is definitely the next big play," wrote another Reddit user. "Cyclicals and anything related to recovery is about have a heyday, just like movie theaters and clothing brands, the airline sector will get it's pump, time to load up."

AAL is the only stock in the S&P 500 with a short position in excess of 30 percent of its total stock, according to another WSB poster. The number of shares sold short on a stock is listed along with its price on most stock quote services, allowing WSB investors to easily pick a suitable stock for this unprecedented action.

However, the Gamestop saga has caught the eye of U.S. regulators, with both The White House and U.S. Securities and Exchange Commission saying they were "monitoring" the situation.

Whether regulators will take formal action to prevent the practice remains to be seen. However, some users on the WSB thread have voiced hope that with this renewed attention on American Airlines, their efforts will be galvanised. "WSB is moving the market," one user of the thread wrote, adding: "Have no fear. None. Take a Flight with Me."

American Airlines did not immediately respond to Newsweek's request for comment.

American Airlines Plane above Los Angeles Airport
American Airlines Boeing 787-9 takes off from Los Angeles international Airport on January 13, 2021 in Los Angeles, California. The company's stock has become the new focus of the group of individual investors who pushed up GameStop's share prices in a bid to stop hedge funds profiting from short-selling the stock. AaronP/Getty