GameStop Short Sellers Down $5B (And Counting) In 2021

Love it or hate it, video game retailer GameStop Corp. GME has been the talk of Wall Street in the past week. The stock gained another 50% on Tuesday as a massive short squeeze continued, and S3 Partners analyst Ihor Dusaniwsky said GameStop short sellers keep racking up the losses.

What Happened? GameStop’s underlying business took a pounding in 2020 due to the pandemic, and the company reported a 30.1% drop in revenue and an $18.8 million net loss in the third quarter. Earlier this month, the company reported $1.77 billion in revenue over the nine-week holiday shopping season, up 3.1% from a year ago. Same-store sales were up 4.8%.

Despite these underwhelming numbers, GameStop shares have skyrocketed more than 500% in the past month, driven in large part by a spectacular short squeeze.

Related Link: 'Peak Stupidity': The End Of The GameStop Short Squeeze Trade?

On Tuesday, Dusaniwsky said GameStop still has $5.51 billion in short interest. After adjusting for “synthetic” long positions, Dusaniwsky estimates GameStop’s short percent of float at 58.2%, higher than any other stock in the market. Less than a month into 2021, Dusaniwsky said GameStop short sellers have already endured more than $5 billion in mark-to-market losses.

In addition to their daily hammering in the open market, Dusaniwsky said existing GameStop short sellers are paying a 31% borrow fee, while new shorts are paying fees of more than 80%.

What’s Next? While GameStop short sellers are getting scorched, Dusaniwsky said the attention the stock is getting is luring in a fresh batch of short sellers. GameStop’s short interest has actually increased by 2.1% overall in the past 30 days, according to S3. In fact, GameStop now has the 12th largest outstanding short position in the U.S. market.

He said the heavyweight fight between institutional short sellers and retail buyers will certainly continue to be worth the watch.

"If GME’s stock price remains at these levels or continues to rise, both value and momentum shorts will be squeezed out of their positions and GME’s stock price will get the added boost of short buy-to-covers standing shoulder to shoulder with long buyers in driving up GME’s stock price. But if GME’s stock price falters, shorts will hold on to their positions and scramble for any slivers of stock loan borrows they can garner as long buyers begin exiting their positions in order to lock in their recent outsized mark-to-market profits."

Benzinga’s Take: Traders should be extremely careful trying to time the squeeze and any potential pullback. Short squeezes are notoriously volatile and unpredictable, even to some of the most experienced stock traders.