Short sellers targeting GameStop Corp. (NYSE:GME) have faced significant losses exceeding $1 billion as the video-game retailer’s stock price nearly tripled this month. On Monday, the stock experienced a dramatic rise, soaring as much as 119% in a volatile trading session that included at least eight halts due to extreme fluctuations in the first hour. By the end of May, GameStop’s stock had climbed approximately 185%, leading to mark-to-market losses for short sellers totaling $1.4 billion, according to data from S3 Partners.
Although the Grapevine, Texas-based company’s stock later settled to a 65% increase by midday in New York, the resurgence of interest mirrors the meme stock frenzy of 2021. During this period, affluent investors drove up prices and took positions against short-selling hedge funds, causing substantial losses for firms like Melvin Capital Management, which ultimately closed, and generating significant profits for early bettors before the stocks plummeted.
From January through April, short sellers had realized estimated gains of $400 million, as per S3 Partners. However, these gains were wiped out by the sudden spike in volatility and share price increases in May. Currently, about 24% of GameStop shares are shorted, a high rate for most companies but significantly below the 140% short interest seen prior to the 2021 surge.
Additionally, the cost of shorting GameStop shares has risen over the past week as the stock value increased, with borrowing rates now exceeding a 10% annual financing fee, indicating the heightened risk and cost associated with betting against the company.
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