GameStop’s Monumental Rally Inflicts Nearly $1 Billion Loss on Short Sellers: Analysis

Monday witnessed a staggering rally in GameStop, inflicting substantial losses nearing $1 billion upon short sellers, as reported by data from S3 Partners.

As GameStop’s stock surged by an astonishing 74%, hedge funds engaged in short-selling found themselves grappling with a mark-to-market loss amounting to $838 million in the traditional brick-and-mortar video game retailer, revealed data firm S3 Partners.

Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3, anticipated a surge in short covering for GameStop, emphasizing the stock’s already high “squeeze score” prior to the day’s trading.

The sudden surge in GameStop’s stock was seemingly instigated by “Roaring Kitty,” formerly known for rallying day traders to invest in the gaming stock in 2021, a historic episode in Wall Street lore. The individual, legally named Keith Gill, resurfaced on social media platform X with a post featuring a picture of a video gamer leaning forward, signaling a renewed interest in the stock.

The frenzy surrounding “meme stocks” saw individual investors taking on short sellers and hedge funds, challenging their pessimistic outlook on GameStop and other targeted companies. This resulted in short sellers being forced to cover their positions, driving up the prices of the stocks in question.

According to FactSet, the short position in GameStop shares currently exceeds 24% of the float, representing all freely tradable shares. With Monday’s losses factored in, short sellers have incurred a staggering $1.24 billion in losses in May alone, according to S3.

Dusaniwsky noted that the ongoing squeeze-related buy-to-covers were contributing to GameStop’s upward trajectory. Additionally, he anticipated new short sellers entering the trade, especially as the stock price hovered around or above the $30 mark, deeming it an attractive entry point.

Short selling, a strategy where investors borrow shares with the expectation of profiting from a decline in market value, lay at the heart of the GameStop saga.

However, GameStop was not the sole beneficiary of the meme stock resurgence on Monday. AMC witnessed a 15% surge, while Reddit soared by 9%.

Dusaniwsky cautioned that short sellers might be in for a tumultuous and potentially costly journey with these stocks in the days to come.