GameStop drops 35% as short squeeze conditions dissipate

GameStop shares fell 35% on Monday before recouping some of the losses as the shorting conditions that brought Reddit’s army of day traders start to dissipate.

Short interest in GameStop stocks has fallen to 39% of the float, from 114% in mid-January, according to data from IHS Markit. And one tweet from S3 Partners Ihor Dusaniwsky Monday shows short stocks fell 35.2 million in the last week alone.

GameStop was big news in the markets for weeks after the stock became a target on Reddit’s Wall Street Bets forum on January 11.

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It all started after Ryan Cohen, activist investor and co-founder of Chewy, wrote a letter to the beleaguered video game retailer, claiming changes needed to be made and new board members added to the company.

Then Reddit traders found out that GameStop has a high short-term interest rate and realized that they could force a short-term squeeze, causing stocks to skyrocket.

Since then, GameStop shares have climbed 1,625% in the entire month of January and more than 400% last week alone.

While the move led to huge gains for WallStreetBets traders, it also resulted in billions of losses for short sellers and institutional investors, some of whom had to be bailed out.

Estimates from data provider Ortex on Friday showed short sellers were sitting on losses of around $ 19 billion in GameStop alone in 2021. And even after Monday’s drop, the shorts fell by around 13 billion. billion dollars in January, according to S3 Partners.

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Still, the bloodbath for short sellers may be over as it seems Reddit traders have turned to money.

The prices of the precious metal have skyrocketed, which has also caused silver miners to soar.

For weeks, Reddit traders had taken advantage of GameStop’s high short-term interest by flooding the stock with new buyers, causing a short squeeze. Now, with several brokerage firms restricting trading at the video game retailer and declining short-term interest, traders aren’t getting the same skyrocketing returns seen over the past two weeks.

“Short presses can only last as long as there is a significant short position in a stock. Once that wears off, the situation changes completely,” said Matt Maley, chief market strategist at Miller Tabak & Co. .

GameStop fell 15% to $ 274.00 at 11:46 a.m. EST Monday.