Melvin Capital closed its short GameStop position on Tuesday afternoon after a massive loss, fund manager Gabe Plotkin told CNBC’s Andrew Ross Sorkin.
The physical video game retailer, the most hated stock of hedge funds, has been the target of an army of private investors piling up against short sellers in online chat rooms. In the Reddit forum “wallstreetbets”, with more than two million subscribers, budding investors encouraged each other to pile into GameStop’s equity and call options, causing tremendous short press on the name.
CNBC was unable to confirm how many losses the company had incurred on the short position. Citadel and Point72, Melvin Capital invested nearly $ 3 billion to support the fund’s finances. Plotkin told Sorkin that the speculation that the company would file for bankruptcy is false.
GameStop shares more than doubled to nearly $ 150 each this week alone, boosting January gains to 685%. The stock was only worth $ 6 four months ago.
GameStop shares gained about 60% in premarket trading on Wednesday, after popping more than 100% earlier in the session.
Amid GameStop’s explosive rally, short sellers have incurred losses of more than $ 5 billion in stock to date, including a loss of $ 917 million on Monday and $ 1.6 billion on Friday, according to data from S3 Partners.
Citron Research short-seller Andrew Left said on Wednesday that he has hedged most of his short position in GameStop at a loss. He previously said GameStop will “quickly” drop to $ 20 a share, calling out attacks from the “angry crowd” who own the stock.
Investor Michael Burry said in a now-deleted tweet Tuesday that GameStop trading is “unnatural, insane and dangerous” and that there should be “legal and regulatory ramifications”. Burry became famous for betting against the housing bubble and was featured in Michael Lewis’ book “The Big Short”.
The US Securities and Exchange Commission declined to comment.
Social Capital’s Chamath Palihapitiya jumped into the controversial name, saying in a Tuesday tweet that he bought GameStop call options by betting the stock will go higher. His tweet seemed to intensify the rally in the previous session. The stock ended the day up 92% at $ 147.98.
Elon Musk commented on the mania on Twitter on Tuesday after the call, linking to the “wallstreetbets” Reddit chat room. Tesla’s CEO tweeted to his 42 million followers “Gamestonk !!” The comment seemed to help keep GameStop stock up during long-term trading on Tuesday.