Short Sellers Lose $5.05 Billion in Bet Against GameStop

GameStop is currently the 12th biggest U.S. equity short

Short sellers betting against mall retailer GameStop have lost $5.05 billion mark-to-market in 2021, according to a note published yesterday by S3 Partners when the stock was 16% higher in intraday trading. Up over 600% since the start of the year on a surge of retail investor interest and resulting short squeezes, GameStop closed up 93% yesterday and is set to continue its mind-bending run higher today.

One of the biggest GameStop short seller "victims" is Melvin Capital, a hedge fund that started the year with $12.5 billion in AUM and lost almost 30% through Friday last week, according to The Wall Street Journal. It announced an emergency infusion of $2.75 billion from fellow hedge funds Citadel and Point72 on Jan. 25, and told CNBC today that it closed out its short position in GameStop on Tuesday afternoon.

Shares in other Melvin shorts like German drugmaker Evotec, German battery maker Varta, and Polish video game firm CD Projekt are also rising this week. Traders Reuters spoke with said this was "likely linked to Melvin Capital closing out its shorts following losses on GameStop and other investments." Meanwhile, Citron Research just revealed it covered the majority of its GameStop short position "in the $90s at a loss 100%." 

It's about to get complicated, so if you need to back up and brush up on some terms or concepts, be our guest. We do it all the time:

GME: The Highest Percentage of Float Shorted in the World

GameStop short interest is currently at $5.51 billion, up from $276 million a year ago, making it the 12th biggest U.S. equity short. It's also an extremely crowded short because even as shorts close their positions and buy, there are others ready to initiate new positions. 

The percentage of the GameStop float sold short is at 139.57%, the highest level for any equity worldwide (with short interest over $100 million) and a completely absurd number. (While some say this could be a sign of naked shorting, S3 analysts argue including "synthetic longs" in the float calculation gives a more accurate picture and short interest is closer to 58%.) 

Due to the lack of stock borrow supply, existing shorts are paying a 31% stock borrow fee and new shorts are paying an over 80% fee. This shortage/high fees combined with a stock rally makes it difficult for short sellers to keep their positions profitably and creates a prime short squeeze target. 2021 has only brought bad news for the bears in such crowded positions. The 16 stocks that had over 40% of their float sold short at the end of 2020 are up an average of 96% year-to-date, according to Bespoke Investment Group.

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  1. Shortsight. "GameStop Shorts Down $5 Billion in 2021."

  2. The Wall Street Journal. "Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management."

  3. Reuters. "Evotec shares rise amid speculation Melvin Capital closing short positions."

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