GameStop Corp (GME) continues to rally today and is now up over +370% in 2021. GME shorts and longs are in a knockout battle being waged in the stock market as well asocial media platforms. Both sides are holding their ground with strong conviction, but in the end, one side will be the outright winner, and in the later rounds of this prize fight the long shareholders are way ahead on points.
GME short interest is $5.51 billion; 71.79 million shares shorted; 139.57% SI % Float; 58.26% S3 SI % Float; 31% stock borrow fee on existing shorts and new shorts are paying over 80% fee.
GME has now climbed to #12 in the short interest league table:
A year ago, GME short interest was $276 million; 63.98 million shares shorted (stock price was $4.32); 104.01% SI % Float; 50.98% S3 SI % Float. While shares shorted only increased by +12%, total dollars as risk have risen by +1,900%. A scarcity in stock borrow availability has limited the increase in shares shorted, but even as mark-to market losses we are not seeing a decrease in overall shares shorted. In fact, GME has the highest level of SI % Float for any equity worldwide (with short interest over $100 million).
GME is #1 in highest Short Interest % of Float:
GME’s SI % of float is over 100%, which is illogical as you cannot get five quarts of milk out of a gallon jug. In actuality, GME’s short interest is 58.26% if we include the “synthetic longs” that are created by short sales in the float calculation. A portion of these “synthetic longs” become lendable shares as they settle in lending programs (mutual funds and ETF providers), marginable retail accounts and rehypothicatable hedge fund accounts. Short selling therefore not only provides added daily trading liquidity but also stock loan liquidity which supports not only the ability to execute Alpha generating short trades but also liquidity for portfolio hedging strategies and derivative (option\swap) hedging.
Over the last 30 days we saw shares shorted increase by +1.53 million shares, worth $117 million, an increase of +2.18% as its stock price rose +281%. Over the last 7 days we saw shares shorted increase by +900 thousand shares, worth $69 million, an increase of +1.27% as its stock price rose +116%.
We are still seeing a short squeeze on existing older shorts, with these more value-based short sellers trimming or closing their positions due to large mark-to-market losses. But, for every short position that is closed, and stock borrow returned we are seeing extremely strong demand from new short sellers looking to initiate new short positions and capitalize on an Icarus like fall for a stock price that has soared too high. Brokers and Prime Brokers are looking into every nook and cranny to satisfy short selling demand.
Shorting GME has not been a profitable trade for short sellers. Shorts were down -$968 million in net-of-financing mark-to-market losses in 2020 and are already down -$5.05 billion in 2021, which includes a loss of -$876 million on today’s +16% intraday move (stock price $89.00).
At the moment, the prize fight is between momentum longs and momentum shorts, with the longs way ahead on points but shorts are looking for a knock-out in the later rounds. While long buyers are continuing to throw punches by continuing to bid up stock prices, short sellers do not have many haymakers left to throw as stock borrow supply curtails new short selling activity in size.
If GME’s stock price remains at these levels or continues to rise, both value and momentum shorts will be squeezed out of their positions and GME’s stock price will get the added boost of short buy-to-covers standing shoulder to shoulder with long buyers in driving up GME’s stock price. But if GME’s stock price faulters, shorts will hold on to their positions and scramble for any slivers of stock loan borrows they can garner as long buyers begin exiting their positions in order to lock in their recent outsized mark-to-market profits. If long shareholders do begin selling, there may be an avalanche of long sellers hitting the tape since no-one wants to see their mark-to-market profits melt away and be the last ones holding the bag. Either way, this is a heavy weight fight worth watching.
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Research Note written by Ihor Dusaniwsky, Managing Director of Predictive Analytics, S3 Partners, LLC
For deeper insight into short side data and analysis contact me at Ihor.Dusaniwsky@S3Partners.com
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