GameStop short sellers aren’t giving up despite $ 20 billion in losses this month

GameStop’s astronomical rally has inflicted huge losses on short sellers of nearly $ 20 billion this month, but they’re not budging.

Hedge fund short sales suffered a $ 19.75 billion drop in market value at the brick and mortar video game retailer, including a loss of nearly $ 8 billion on Friday as the stock rose further, according to S3 Partner.

Still, short sellers tend to hold onto their bearish positions or are replaced with new hedge funds willing to bet against the stock. GameStop stock, which was borrowed and sold short, is down just under 5 million in the past week, which is an 8% decline in short rates, according to S3. Most of the short coverage came on Thursday when the stock fell for the first time in six days.

“I keep hearing that ‘most GME shorts are covered’ – totally wrong,” said Ihor Dusaniwsky, S3 managing director for predictive analytics. “In fact, the data shows that overall net stocks declined didn’t move too much.”

“While the ‘value shorts’ that used to be in GME were squeezed, most of the borrowed stocks that were returned on the back of the buy-to-cover were cut with new momentum shorts in the name,” Dusanivsky added in one Email.

GameStop’s shares, as well as other sharply shortened stocks, rose again on Friday after Robinhood announced it would resume limited trading in previously restricted securities. The profit brought GameStop’s rally over 400% this week and over 1,600% this month.

The video game inventory starred the show on WallStreetBets Reddit forum, which quickly grew to over 5 million members. A wave of day traders continued to encourage each other to pile up on GameStop’s stocks and call options, resulting in a massive short squeeze that hurt hedge funds betting against the stock.

The GameStop stock borrowing fee – or the cost of borrowing stocks for the purpose of short selling – rose to 29.32% for existing short positions and 50% for new short positions, S3 said.

“If most of the short positions were covered, we wouldn’t see stocklending rates at this high level. By now you could borrow GME stock in the single digits as the supply of stock borrowed loans has increased after all the ‘supposed’ buy- to be returned covers, “Dusanivsky said.

GameStop remained the most abbreviated name on the market as the percentage of stocks available for trading was 113.31%, S3 said.

Short selling is a strategy in which investors borrow shares of a stock at a certain price in the expectation that the market value will drop below that level when it is time to pay off the borrowed shares.

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