In this article, we discuss the 5 biggest short squeezes of all time. If you want to read our detailed analysis of these short squeezes, go directly to the 10 Biggest Short Squeezes of All Time.
5. GameStop Corp. (NYSE: GME)
In January, GameStop Corp. (NYSE: GME) surged amid retail investor interest as hedge funds looked to short the stock based on revenue numbers and future growth projections. The company was a video game retailer that had seen sales fall amid falling numbers of visitors to stores during the coronavirus lockdowns. As hedge funds took short positions on the firm, some famous investors, like Michael Burry and Ryan Cohen, as well as influencers on internet platform Reddit, outlined a bull case for the company, sparking retail investor interest.
As these retail investors piled onto GameStop Corp. (NYSE: GME) stock, the share price jumped from less than $5 to almost $325 in a time period spanning just six months. This rally convinced some famous people, like Elon Musk and Chamath Palihapitiya, to back the stock, leading to a snowball effect and the share price continued to climb. In late January, trading app Robinhood suspended trading in the stock, giving short-sellers some time to recover losses.
It is estimated that short-sellers lost close to $2 billion through the whole development. The company is still attracting a lot of retail investor interest and remains one of the most volatile stocks on the market this year. Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in GameStop Corp. (NYSE: GME) with 3.2 million shares worth more than $620 million.
Rhizome Partners, in its Q1 2021 investor letter, mentioned GameStop Corp. (NYSE: GME). Here is what the fund said:
“The first quarter saw some bizarre market reactions. Game Stop is a heavily shorted legacy video game retailer that saw its stock price rise from $17 to a peak of $483 within a month. It appears that retail investors on a Reddit.com forum called WallStreetBets used memes to create a viral feedback loop of forced buying. Game Stop reached $20 billion in market cap and had more daily trading volume than Apple at one point. The Game Stop short squeeze became a black swan event for the short sellers. Large hedge funds such as Melvin Capital suffered 50% losses during a short period and required emergency capital injections that resulted in costly dilution. Shorting is difficult and introduces a risk of ruin. This is especially true in situations where a large percentage of the float is shorted. We want to remind you that we hedge our portfolio via index puts, sector puts, and sometimes buying puts directly in our own portfolio companies. However, we rarely short because 1) we are not good at it 2) the potential for brain damage is too high and 3) we want to avoid the risk of ruin.”
