Data shows ‘vast majority’ of bets against GameStop have already been made
Nov 23rd, 2022 15:14 EST
It’s too little, too late for traders looking to make fresh bets against meme stock darling GameStop (GME).
According to data from S3 partners, just 3 million shares remain available to be sold short, with the firm's data showing 95% of available stock borrows are already being used to cover shorts.
In other words, of all shares of the company made available by investors to be sold short, just 5% have not been spoken for.
“The vast majority of GME short selling has already been done, existing short sellers will be able to add some more exposure to their positions and new short sellers may enter the trade — but there is not enough stock left to borrow to execute large trades in the stock,” S3’s Ihor Dusaniwsky said in a note.
Short-sellers bet on a stock’s decline by borrowing shares of a stock whose price they believe will fall, with the goal of selling them back at a lower price and pocketing the difference.
Short interest in GameStop stands at around $1.3 billion with 52.9 million shares shorted, per the latest available figures from S3 Partners. Not all outstanding shares of a company are made available to be borrowed for short sellers.
Bets against the video game retailer were back in headlines this week after Bloomberg reported Tuesday activist investor Carl Icahn has held onto a short position in the company since last year’s “short squeeze” that resulted in a more than 2,000% increase in GameStop's share price in just a few weeks.
“Timing is everything when shorting GME,” Dusaniwsky said, likening the shorting spree across January 2021 to the final battle at the end of most video games. At the time, shorts were down $10.3 billion in mark-to-market losses in less than a month.
“There is a slim chance you get out alive, and if you do survive you will come out bloodied," he said. “But, if shorts had the ability to ‘respawn,’ the rest of 2021 was like driving Mario Kart with the Star of Invincibility,” with shorts up $4.2 billion in mark-to-market profits for the rest of the year.
In 2022, GameStop shorts are up a modest $152 million in year-to-date mark-to-market profits, or up 9.5% on an average short interest of $1.60 billion.
Dusaniwsky explained that a short seller who took a position in GameStop on January 27, 2021 is sitting on a large mark-to-market profit and will be difficult to squeeze out, particularly because doing so would trigger large realized profit tax payments.
“And in Carl Icahn’s case, his large mark-to-market profits and large capital base which can be used to offset any temporary margin calls or high stock borrow financing costs make it unlikely that he would be forced to exit his position.”
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc