Melvin Capital posted returns of more than 20% in February, sources say

The hedge fund at the center of the GameStop saga gained more than 20% in February, pushing back some of its losses from a brutal January, sources told CNBC’s Leslie Picker.

Melvin Capital, which previously had a big bet against the video game retailer, saw a return of 21.7% in February, according to sources. The fund fell 53% in January during the dramatic short squeeze that pushed GameStop and other stocks up.

The company said in late January that it had shut down its GameStop shorts when the stock rose. Melvin’s founder, Gabe Plotkin, was one of the people brought in before Congress to testify before Congress about the volatile market movements, along with Citadel’s Ken Griffin and retailer Keith Gill.

Melvin received new investments in its fund during the turmoil, with Citadel and Steve Cohen’s Point72 injecting $ 3 billion.

Plotkin’s hedge fund, like many others, will go short on a company. Short selling is a strategy where investors borrow shares of a stock at a specified price in the hope that its market value will fall below that level when it comes time to pay for the borrowed shares.

The high level of short positions in some stocks, including GameStop, was noticed by traders on social media sites such as Reddit’s WallStreetBets forum.

A wave of purchases in GameStop and other names caused short squeezes, which is the phenomenon that occurs when short sellers buy stocks to cover their positions, driving prices even higher. GameStop’s stock price went from less than $ 20 to nearly $ 500 at one point before falling sharply.

Plotkin told the House Financial Services Committee last month that short sellers may need to change their strategies after retailers appeared to be driving dramatic gains for some of their key targets.

“I think we at Melvin, we will adapt and I think the whole industry will have to adapt,” said Plotkin.

Melvin Capital declined to comment to CNBC.

– CNBC’s Kevin Stankiewicz contributed to this story.