2 short sellers admit defeat, bail out with huge loss as GameStop share surge hits 1000%


In the David and Goliath saga surrounding the struggling retail chain GameStop, Goliath has fallen.
Two Goliaths, actually.

Two professional investment firms that made big bets on the stock crash of money-losing video game retailer GameStop have largely abandoned their positions. The Winners: An army of small investors who have come together on Reddit and elsewhere online to support GameStop’s action and push back the pros.

One of the two major investors who surrendered, Citron Research, admitted in a YouTube video on Wednesday that he had settled the majority of his bet that GameStop stock would drop. Andrew Left, who runs Citron, said it took “a 100% loss” to do so, but that doesn’t change his view that GameStop is a loser.

“We are moving on. Nothing has changed with GameStop except the share price, ”Left said. He acknowledged that Citron was taking a new look at how he gambles against corporations, in light of the GameStop campaign.

Melvin Capital is also leaving GameStop, with manager Gabe Plotkin telling CNBC the hedge fund was suffering a significant loss. He has denied rumors that the hedge fund will fail.

The extent of the losses suffered by Citron and Melvin is unknown.

GameStop’s stock shot up to $ 380 on Wednesday morning, after sitting below $ 18 just a few weeks ago.

GameStop’s stock has long been the target of investors betting that its stock will drop as it struggles in an increasingly online industry. The retailer has lost $ 1.6 billion in the past 12 quarters and its inventory has fallen for six consecutive years before rebounding in 2020.

This prompted investors to sell GameStop’s shares short.

WATCH | How short selling works:

An animated explanation of how people make money with depreciating stocks 0:46

Essentially, these short sellers borrowed shares from GameStop and sold them in the hopes of buying them back later at a lower price and pocketing the difference. GameStop is one of the best-selling stocks on Wall Street.

But its stock began to rise sharply earlier this month after a co-founder of Chewy, the online pet supplies retailer, joined the company’s board of directors. The idea was that it could help with the digital transformation of the company.

Small investors are pushing stocks higher

At the same time, small investors gathered on social media urged each other to keep pushing the stock higher.

There’s no compelling reason GameStop has attracted these small investors, but there is a distinct element of revenge against Wall Street in online communications.

Over the past three months, shares of GameStop Corp., which has been rocked by a shift in gaming technology, have climbed more than 1,000%. Shares rose 100% at the opening bell on Wednesday.

This created titanic losses for major Wall Street players who ‘shorted’ the stock, meaning they borrowed stocks and sold them, hoping to buy them back at a lower price. and pocket the difference.

As of Tuesday, losses had already exceeded $ 5 billion in 2021, according to S3 Partners.

The phenomenon does not seem to be fading.

The pandemic-ravaged theater chain AMC Entertainment Holdings Inc. posted a quarterly loss this month exceeding $ 900 million.

However, it appears that AMC has become the next battleground in the fight between small retail investors and Wall Street.

AMC shares climbed 260% when trading began on Wednesday and SaveAMC is all the rage on Twitter.


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