Short-sellers are nursing estimated losses of $19 billion in 2021 after betting on GameStop’s stock to plunge

Short-sellers are nursing estimated losses of $19 billion in 2021 after betting on GameStop’s stock to plunge

Harry Robertson

Short-sellers have lost about $19 billion on GameStop in 2021, new estimates suggest.
Reddit day traders have sent the stock soaring by more than 1,500% this year.
GameStop’s rise has hammered hedge funds including Melvin, Point72, and D1.

Hedge funds and other institutions shorting GameStop stock were sitting on losses of about $19 billion as of Friday, new data shared exclusively with Insider indicates.

  • Figures from the data provider Ortex suggested that investors who had bet that the share price would fall had been massively squeezed, with losses topping $10 billion on Wednesday alone, when GameStop soared 135%.

Members of the Reddit forum Wall Street Bets have gone to war with hedge funds such as Melvin Capital this week over the US video-game retailer.
Forum members banded together to help drive up GameStop stock by more than 1,500% over the past month, with seemingly little business basis.

The rise has dramatically “squeezed” investors who were betting that the price would fall. As the price has soared, short-sellers have been forced to “cover” their positions by buying back stock at a huge loss.

  • “The long and the short of it hedge funds are hurting,” said Eleanor Creagh, a market strategist at Saxo Bank, adding that “the problem from here” is “whether the initial bout of deleveraging causes a chain reaction of squeezed positioning.”
  • When the GameStop stock price soared on Wednesday, investors’ losses on paper rose by about $10.2 billion, Ortex’s data showed. But as the price tumbled on Thursday, short-sellers regained some ground, with estimated gains of $5.95 billion.Overall, Ortex estimated that short-sellers were on track for losses of about $19.04 billion as of Friday, with GameStop’s share price up by 78%, to about $345, just before 11 a.m. ET.

The losses haven’t been realized – they’re estimates based on data provided by lenders, brokers, and dealers. But they give a sense of the scale of the hit to hedge funds and other short-sellers.

  • Melvin Capital and Citron Research both said this week that they had closed their short positions, but they did not disclose any losses incurred.
  • Ortex estimated that the number of GameStop shares being shorted had fallen from about 79,000 on January 13 to fewer than 39,000 as of Thursday.
  • Steve Cohen’s $19 billion hedge fund, Point72, has lost nearly 15% this year during the GameStop frenzy, a source told The New York Times. And Bloomberg reported that $20 billion D1 Capital Partners had lost about 20% in January.
  • Data from Ortex released on Thursday indicated that short-sellers were sitting on losses of about $70 billion because of their overall short positions on US firms so far this month.