GameStop short-sellers lost $1.6 billion in a single day as Reddit traders rebelled against them

Lucas Jackson/Reuters
  • Short-sellers targeting GameStop have lost $US3.3 billion betting against the stock in 2020, as of last week’s market close, according to S3 Partners data.
  • Losses totaled roughly $US1.6 billion on Friday alone as the stock rallied 51%.
  • The video-game retailer has rocketed higher in recent weeks as Reddit traders drive bullish momentum to extraordinary levels.
  • Watch GameStop trade live here.

Investors betting against GameStop and the army of bullish retail traders have already lost billions in 2021.

Mark-to-market losses for GameStop shorts on a year-to-date basis reached $US3.3 billion when trading closed on Friday, according to data from financial analytics firm S3 Partners. Losses totaled nearly $US1.6 billion on Friday alone as shares rocketed 51% higher into the close.

GameStop stock continues to climb as Reddit users and day-traders extend the unusual momentum trade into its third week. The company initially leaped on January 11 after agreeing with an activist investor to add three new directors to its board. The day’s gains drew in swaths of retail traders, including members of the popular WallStreetBets subreddit.

Online posts urging other investors to join the trade have since driven outsized bullish momentum for GameStop. The stock traded 115% higher as of 10:40 a.m. ET Monday and is now up more than 500% year-to-date.

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Though some believe gains have been fuelled by a massive short-squeeze, demand for shorting the stock remains strong. About 72 million shares — or 140% of GameStop’s float — were shorted as of Friday, according to S3. The past seven days saw the number of shares shorted climb by 883,000, despite the stock soaring higher.

“There has been a queue of new short-sellers wanting to get short exposure in GameStop after its recent run-up,” Ihor Dusaniwsky, managing director of predictive analytics at S3, told Insider, adding that brokers have been unable to meet the demand for shares to sell short.

Short-sellers and Wall Street have struggled to make sense of the retail-trader phenomenon. Only one firm, Telsey Advisory Group, has downgraded shares since they spiked earlier this month. The street’s median price target sits at $US11.96, implying the broad expectation for an 81% crash.

Andrew Left of Citron Research, one of Wall Street’s most outspoken GameStop shorts, said Friday he would no longer comment on the stock. Left posted a video on Thursday criticising the bullish day-traders and arguing the stock would soon plummet to $US20. WallStreetBets members chided Left in kind with memes and derogatory comments.

The short-seller alleged Friday that the “angry mob” of online traders harassed him and attempted to hack his Twitter account, which ultimately led to him ending his commentary on the stock.

Left still maintains his short thesis, but what began as a moderate short squeeze has evolved into a “vice-grip” on those betting against GameStop, Dusaniwsky said. The stock’s extended rally will force shorts to reconsider their confidence in their position and likely kill off a great deal of GameStop bears, he added.

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