GameStop re-emerged on Tuesday after a wild session, pushing the stock back above $ 140, but short sellers betting against the brick and mortar video game retailer are far from easing.
GameStop’s shares rose 92.7% to $ 147.98 on Tuesday after trading as high as $ 150 during the session. 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 will go higher. Trading was suspended several times due to the volatility.
The stock rose further in expanded trading on Tuesday, rising more than 30%. The leap after work came after Elon Musk commented on the mania on Twitter and linked it to the infamous Reddit chat room “wallstreetbets” with over 2 million subscribers. The Tesla CEO tweeted “Gamestonk !!” to his 42 million followers.
GameStop surged more than 680% 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 year-to-date, 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 interest in shorts is unchanged from a week ago at 139%.
“Similar to the Revolutionary War, the first line of troops is drowning in a shower of musket fire, but is being 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 on a significant number of existing short sellers,” added Dusaniwsky.
The explosive rally at GameStop was mainly due to the buying frenzy of individual investors in online forums. A Reddit trending post on Tuesday included a screenshot of the user portfolio with a return of over 1,000% on GameStop stock.
GameStop had a roller coaster ride on Monday, during which the stock more than doubled and turned 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.
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