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Wednesday, Mar 03, 2021

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

The war between hedge funds and Reddit day traders has cost short-sellers around $19 billion this year just on GameStop, according to new data.
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.
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