GAMESTOP EXPLAINED
This is history Anons.
Bets against GameStop alone amounted to more than $2.2 billion as of Monday, FIS’ Analytics data showed, equivalent to more than a fifth of the company’s market value.
However, the company’s share price has quadrupled since the end of last week and added as much as 86% in early Wednesday trading to $276.
“Most of the short positions are funded on margins. And so when markets run against you, you are stopped out if you are a short seller,” said Kaspar Hense, a fund manager at BlueBay Asset Management, which runs $60 billion in assets.
“A short position can exaggerate your losses if you are not actively managing your position.”
Several traders have told that one of the reasons for the jump in the price of some shares is short-sellers buying back into the stock to cover potential losses the classic short-squeeze drawing in more retail investors hoping to ride the wave.
Retail investors’ participation in U.S. equity order flows increased to nearly 20% in 2020 from 15% in 2019, while orders from long-only funds fell to 6.4% last year from 9.7% in 2019, data from Swiss bank UBS showed.
Short sellers typically borrow stocks to sell with a view to buying them back later when the price falls. The premium they pay to borrow the shares reflects the demand for them.
All the GameStop shares that would be available to borrow are are already out on loan, with traders estimating annual borrowing costs at 25%-50% of the company’s share price.
Short-seller Andrew Left, who runs Citron Research and is one of the big names behind the bets against GameStop, shorted the stock when it traded around $40, expecting it to halve in value. He still has a short bet although he has covered the majority of the position at a 100% loss.
Melvin Capital Management also closed out a short position against GameStop at a 100% loss.