GameStop shares are bouncing once more, however brief sellers aren’t giving in
GameStop is resurfacing after a wild session, pushing the stock back above $ 100, but short sellers betting against the brick and mortar video game dealer are far from easing.
GameStop’s shares rose more than 90% on Tuesday to a record high of $ 147.63. The stock rose sharply after Social Capital’s Chamath Palihapitiya said in a tweet that he bought GameStop call options and bet that the stock would go higher. Trading was suspended several times due to the volatility.
GameStop surged more than 600% in January alone when an army of retail investors took on short sellers in online chat rooms, encouraging each other to stack up and push the stock higher. Short sellers have lost more than $ 5 billion in market value annually, including a loss of $ 917 million on Monday and $ 1.6 billion on Friday, according to S3 Partners.
Despite the massive shortages, short sellers are doubling their bearish bets. In the past 30 days, GameStop stock borrowed and sold has increased by 1.5 million shares valued at $ 117 million as the share price more than doubled, according to S3 Partners.
Short sellers have also reloaded bets in the past seven days, with short sales up more than $ 900,000 worth $ 69 million. GameStop’s short interest remains unchanged from a week ago at 139%.
“Similar to the War of Independence, the first line of troops is drowned in a shower of musket fire, but is replaced by the next troops,” said Ihor Dusaniwsky, S3 managing director for predictive analytics, in an email. “We’re seeing a short squeeze on older shorts that have suffered massive mark-to-market losses on their positions but are seeing new shorts.”
“This keeps the short positions in GME stock relatively flat overall, although there is a significant short squeeze of a significant number of existing short sellers,” added Dusaniwsky.
The explosive rally in GameStop was mainly due to the buying frenzy of individual investors in online forums, particularly the infamous Reddit chat room “wallstreetbets” with more than 2 million subscribers. A trend post on Tuesday includes a screenshot of the user portfolio showing a return of over 1,000% on GameStop stock.
GameStop had a roller coaster ride on Monday that saw its stock more than double and turn negative within a few hours. The stock closed 18% on Monday at $ 76.79.
“The flow of orders in retail in Options is accelerating the short squeeze,” said CC Lagator of Options AI. “The call buyers are essentially leveraging the market makers’ hedges. As stocks go up, more stocks are bought to cover the increase in short deltas. This is market inefficiency and eventually ends when those who sell the calls are over-hedged for a share that no longer rises and then actually has to sell shares in order to remain delta-neutral. “
The hedge fund Melvin Capital Management, which is short on GameStop, is down 30% through Friday this year, according to The Wall Street Journal.
Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.