Key Takeaways
- • Melvin Capital closed its entire GameStop short position on Tuesday, January 27, 2021, after sustaining substantial losses, according to hedge fund manager Gabe Plotkin in a direct statement to CNBC's Andrew Ross Sorkin.
- • GameStop shares surged 685% in January alone, climbing over 400% in a single week to $347.51, with the stock subsequently rising another 134% on Wednesday to propel the company's market capitalization to $24 billion—despite trading at just $6 four months prior.
- • Short sellers across the market accumulated cumulative losses exceeding $5 billion year-to-date in GameStop, including $917 million lost on January 25 and $1.6 billion on January 22, according to S3 Partners data.
- • Citadel and Point72 infused approximately $3 billion into Melvin Capital to stabilize the fund's capital position, while Plotkin publicly denied speculation regarding a potential bankruptcy filing.
- • GameStop became the single most actively traded stock in the U.S. market on January 26, surpassing Tesla and Apple by trading volume despite being 81 and 233 times smaller by market capitalization, respectively.
Summary
Melvin Capital Management, the New York-based hedge fund that had emerged as a primary target of coordinated retail traders on the Reddit forum "wallstreetbets," closed out its GameStop short position on Tuesday afternoon after absorbing significant losses. Gabe Plotkin, the fund's manager, disclosed the closure directly to CNBC's Andrew Ross Sorkin, though the precise magnitude of losses remained unconfirmed at the time of reporting. The decision marked a capitulation in the most visible clash between institutional short sellers and an organized retail investor cohort that marshaled forces in online chat rooms to orchestrate a short squeeze against established market participants.
The underlying dynamics driving Melvin's exit centered on GameStop's extraordinary price appreciation. The stock climbed 685% across January, with particularly violent moves in the final week as retail investors encouraged each other to accumulate shares and call options through "wallstreetbets," which had amassed over 2 million subscribers. By Tuesday, January 27, GameStop had reached $347.51 per share, representing a staggering increase from $6 just four months earlier. The stock posted an additional 134% gain on Wednesday, pushing the company's market value to $24 billion—a valuation for a brick-and-mortar video game retailer facing structural retail headwinds.
The scale of losses across the short-selling community underscored the severity of the short squeeze. S3 Partners data indicated that short sellers had accumulated losses exceeding $5 billion year-to-date in GameStop, with particularly acute pain inflicted on January 22 ($1.6 billion in losses) and January 25 ($917 million). GameStop emerged as the single most traded security in the U.S. stock market on January 26, according to Deutsche Bank strategist Jim Reid, despite being substantially smaller than competitors like Tesla and Apple by market capitalization—a striking divergence reflecting the concentrated trading intensity among retail participants.
To shore up its capital position amid the deterioration, Citadel and Point72 infused approximately $3 billion into Melvin Capital. Plotkin addressed market speculation about potential bankruptcy proceedings in an appearance on Wednesday's "Squawk Box," explicitly denying such reports. Separately, Andrew Left of Citron Research, another prominent short seller, reported covering the majority of his GameStop short position at a loss after having previously predicted the stock would revert to $20 per share "fast" and criticized the "angry mob" of retail holders.
The underlying dynamics driving Melvin's exit centered on GameStop's extraordinary price appreciation. The stock climbed 685% across January, with particularly violent moves in the final week as retail investors encouraged each other to accumulate shares and call options through "wallstreetbets," which had amassed over 2 million subscribers. By Tuesday, January 27, GameStop had reached $347.51 per share, representing a staggering increase from $6 just four months earlier. The stock posted an additional 134% gain on Wednesday, pushing the company's market value to $24 billion—a valuation for a brick-and-mortar video game retailer facing structural retail headwinds.
The scale of losses across the short-selling community underscored the severity of the short squeeze. S3 Partners data indicated that short sellers had accumulated losses exceeding $5 billion year-to-date in GameStop, with particularly acute pain inflicted on January 22 ($1.6 billion in losses) and January 25 ($917 million). GameStop emerged as the single most traded security in the U.S. stock market on January 26, according to Deutsche Bank strategist Jim Reid, despite being substantially smaller than competitors like Tesla and Apple by market capitalization—a striking divergence reflecting the concentrated trading intensity among retail participants.
To shore up its capital position amid the deterioration, Citadel and Point72 infused approximately $3 billion into Melvin Capital. Plotkin addressed market speculation about potential bankruptcy proceedings in an appearance on Wednesday's "Squawk Box," explicitly denying such reports. Separately, Andrew Left of Citron Research, another prominent short seller, reported covering the majority of his GameStop short position at a loss after having previously predicted the stock would revert to $20 per share "fast" and criticized the "angry mob" of retail holders.
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