GameStop stock slide gives remaining short sellers some relief

The sharp slide in GameStop Corporation shares is stemming the bleeding for short sellers, even though some who bet against the high-flying stock have already exited the trade to cut their losses.

Short sellers saw paper gains of $3.57 billion during the session on Tuesday, February 2, as GameStop’s shares dropped 60% to $90, according to analytics firm S3 Partners.

Overall, the last two days have been a relief for remaining bearish GameStop investors, after retail traders pushed the heavily-shorted stock well over $400 a share last week. Silver, another asset involved in the retail trading frenzy, has been more immune to short squeezes due to a lack of a big position.

Year-to-date realized and unrealized losses for GameStop shorts stood at $9.08 billion, according to S3, less than half of where the combined year-to-date losses stood on Friday morning, January 29.

“Are the remaining shorts now making back some of their losses? Absolutely,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.

But a number of short investors have already covered their bets. The number of GameStop shares shorted fell to 26.09 million, about 1 million less than a day earlier and down more than half in about a week, according to S3.

“It’s kind of hard to win when you’ve already lost half your troops,” Dusaniwsky said. “We have had a lot of shorts take their losses and walk away from the trade.”

Melvin Capital, the hedge fund at the center of the GameStop drama, lost 53% in January, while Maplelane Capital, another fund that bet against GameStop, had lost roughly 45% in January.

The remaining shorts likely include those who have been betting against the stock for a while and have had an “iron stomach” as the stock soared and “momentum shorts” who have jumped into the trade more recently as the stock price showed weakness, Dusaniwsky said.

Short interest in GameStop, a measure of the stock’s price and number of shares shorted, stood at $5.81 billion as of the close on Monday, February 1, down about 34% from Friday, according to S3.

Along with the decline in GameStop shares, silver prices also retreated on Tuesday as the Reddit-driven trading frenzy that has shocked global financial markets appeared to fizzle.

Silver prices in recent days have become an alternate focus in the battle between retail traders and big institutions.

But unlike stocks such as GameStop, analysts said there was no big short position in silver to squeeze.

Banks and silver producers do hold large short positions in US futures markets, but these tend to be balanced against silver holdings elsewhere or future production, meaning they are not exposed to price moves.

Most money managers and speculative investors on the Comex exchange in New York were already long silver before prices began to rise, and so have benefited from rising prices.

What some of the Reddit crowd set out to do was to create a supply squeeze by buying more silver than the market could provide. But most traders say the market remained liquid and there is plenty of silver around.

Silver slid more than 7% on Tuesday after surging on Monday to its highest level since February 2013. – Rappler.com