GameStop tumbles by 35% as short squeeze conditions disappear

GameStop’s shares plummeted 35% on Monday before making up for some of the losses as the conditions of the short-squeeze that brought in Reddit’s day trading army begin to dissipate.

According to data from IHS Markit, short-term interest rates in GameStop stocks have fallen to 39% of the float, from 114% in mid-January. And a tweet from S3 Partners Ihor Dusaniwsky on Monday, short-circuited stocks fell 35.2 million in the past week.

GameStop has been big news in the markets for weeks after the stocks became a target of Reddit’s Wall Street Bets forum on Jan. 11.

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It all started after Ryan Cohen, an activist investor and co-founder of Chewy, wrote a letter to the beleaguered video game retailer claiming changes needed to be made and new board members added to the company.

Then traders on Reddit discovered that GameStop had a high short-term interest rate and realized they could force a short squeeze, causing stocks to skyrocket.

Since then, GameStop shares are up 1,625% throughout January and more than 400% last week alone.

While the move resulted in massive profits for WallStreetBets traders, it also caused billions in losses for short sellers and institutional investors, some of whom had to be bailed out.

According to data provider Ortex estimates on Friday, short sellers posted losses of approximately $ 19 billion in 2021 in GameStop alone. And even after Monday’s drop, shorts are down about $ 13 billion in January, according to S3 Partners.

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Still, the short-seller carnage may be over, as it seems Reddit merchants have shifted their focus to silver.

Prices for the precious metal have risen sharply, causing silver miners to skyrocket as well.

For weeks, Reddit merchants had taken advantage of GameStop’s high short interest rate by flooding the stock with new buyers, triggering a short squeeze. Now, with multiple brokers restricting video game retail trading and short-term interest rates falling, traders are not getting the same fast returns they have seen in the past two weeks.

“Short squeezes can only last as long as there is a large short position in a stock. Once that disappears, the situation changes completely,” said Matt Maley, chief market strategist at Miller Tabak & Co.

GameStop was down 15% to $ 274.00 as of 11:46 am EST Monday.