GameStop Short Sellers Face $1.4 Billion Loss in Meme Stock Rally

Game Stop
Short sellers wagering against GameStop Corp. (NYSE:GME) have suffered substantial losses exceeding $1 billion as the company’s stock price surged, nearly tripling in value this month. The video-game retailer’s shares experienced a dramatic 119% increase at the start of trading on Monday, prompting at least eight trading halts due to significant volatility within the first hour. By mid-May, the stock had escalated by approximately 185%, causing mark-to-market losses for short-sellers to skyrocket to $1.4 billion, as reported by S3 Partners.

After the initial surge, GameStop’s shares, headquartered in Grapevine, Texas, moderated to a 65% increase by 11:20 a.m. in New York. This resurgence echoes the meme-stock frenzy of 2021, driven by liquidity-rich investors who challenged short-selling hedge funds, yielding substantial losses for entities like Melvin Capital Management, which eventually ceased operations.

Despite short sellers gaining around $400 million from January through April, the rapid swings typical of meme-stock trading wiped out these gains. According to S3 Partners, the proportion of GameStop shares being shorted remains high at about 24%, significantly above average but still below the extreme 140% seen before the 2021 surge.

Moreover, the cost of shorting GameStop shares has increased over the past week as the stock has climbed, with borrowing costs now exceeding a 10% annual financing fee, highlighting the risks and volatility associated with betting against meme stocks.

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