In-depth Short Squeeze Explanation: What are short-sellers? In true short squeeze fashion, within only a short period of time, GameStop traded back down to around $40. Ultimately this entire dynamic took the stock from trading around $13 to trading at a 52-week high of $483 within a matter of days. This led to an initial spike of 50% which only brought more attention, more buyers, and more pressure on those who still held a short position. Within a few days, GameStop stock found very large buying interest from the positive catalyst in a massively shorted stock.

This would come from Reddit’s r/wallstreetbets subreddit where the recent information was picked up and eventually pushed to its several million users. All of this could be taken as the change GameStop desperately needed and a vote of confidence from the new additions.Īt this point, GameStop had the catalysts in place to trigger the short squeeze they just needed stock buyers. Not only did this new leadership come on as directors, but Cohen had invested a meaningful amount of his own money into GameStop. The addition of this leadership brought in high-caliber talent that grew a three-person startup to a 10,000-employee business which had a successful recent IPO. They are Ryan Cohen – the founder of Chewy, Alan Attal – former head marker of Chewy, and Jim Grube – former head of finance at Chewy. In January 2021 GameStop announced they were adding three new directors who had massive success in the e-commerce space. If anything went wrong, such as better-than-expected earnings or attracting high-caliber leadership could trigger a short squeeze. Having a short interest over 100% makes the short-sellers very susceptible to the worst thing that could happen to a short seller – a short squeeze. In fact, GameStop had short interest over 100% which means more shares had been shorted than were even available to the public. That said, these we not the only firms targeting GameStop as a short. In GameStop’s case, notable firms such as Citron Capital and Melvin Capital were among the investors holding significant short positions. Typically, however, short-selling like this is done primarily by hedge funds or institutions as it is significantly more risky than a normal “long”. GameStop certainly seemed like a straightforward candidate for this strategy as it appeared only a matter of time.

Bring in the PlayersĮven a company on the decline poses a potential for profit by short-selling shares. It appeared they were going to be the blockbuster of this industry. Add in the qualitative aspect that the company’s whole business was primarily operating brick and mortar shops for products that had almost moved completely digital -computer games. In the eyes of most investors, an established company whose earnings look like this is a clear signal of trouble and likely bankruptcy. By 2020, GameStop’s fundamentals had deteriorated at an astonishing rate, closing over 200 stores and losing -$6.59 per share in 2019 and on track to close an additional 462 stores in 2020 with losses of – $5.38 per share. GameStop, once a behemoth of personal gaming had its last profitable year in 2018, squeaking out +34¢ of profit per share. Probably the most famous short squeeze of all time was the 2021 GameStop/Reddit short squeeze. The Story Behind GameStop – The Most Famous Short Squeeze

Short squeeze definition