Financial markets/economy

GameStop shares beat short sellers again

Posted by MoneyController on 14.05.2024

One of the most famous ‘meme stocks’ of recent years is back in the news, with a sharp rise that caused huge losses for ‘short’ investors.

GameStop's sudden rise knocks out short sellers

GameStop is back in the news in the financial markets. The video game and entertainment merchandise company recorded a sudden rise in its value on the stock exchange, much like it did in 2021. This rise of 74% in a few hours caused huge losses among short sellers. According to data made available by S3 Partners, these investors, i.e. hedge funds, lost around $838 million.   

The return of the "meme stock"

As Yun Li of ‘CNBC’ writes, again, it seems that the rise was triggered by ‘Roaring Kitty’, a kind of influencer among the investor community (a post on ‘X’ is said to have triggered the run-up in the stock). The script was very similar to the one that was staged in 2021: investors bought the stock en masse, forcing hedge funds, in this case short sellers, to buy back the stock at prices much higher than the purchase price, with considerable losses for those same funds.

Losses in excess of USD 1 billion

Li again points out that if we look at the S3 Partners data, the funds have lost around USD 1.24 billion since the beginning of May. The stock has gone from a unit value of about $10 (mid-April) to the current $30, thus tripling its value.

The prospects for short sellers are not over

Short selling is the borrowing of securities, which are sold with the promise to be repurchased: if the transaction succeeds, the seller profits from the difference between the purchase price and the selling price. The risk, conversely, is that the sale price turns out to be lower than the repurchase price. As can be read in Li's article, S3 Partners executive director Ihor Dusaniwsky points out that these sudden rises certainly result in large losses for short sellers; nevertheless, precisely because they are high, GameStop's new ones are inviting prices for new short sellers.

Read also:

Stock markets back on top: what is behind the new record highs?

Investment outlook if the market remains bullish

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