Why haven’t they learned their lesson?
Hedge Funds that shorted GameStop and AMC lost an estimated $754 million earlier this week, according to data gathered by the financial analytics firm Ortex.
On Monday, GameStop stock made headlines for gaining 16.94% in value over the prior month, outperforming the retail-wholesale sector which lost 3.17% over the same period.
This news reignited retail investor interest in GME, which rose 30% from Tuesday, reaching $233.
AMC also benefited from retail investor enthusiasm. It was up 37% from Tuesday, reaching $18.77, the highest level since January.
GME and AMC are so-called “meme stocks,” a term used on the WallStreetBets subreddit to denote stocks that are popular with retail investors.
The spike in the value of the popular meme stocks caused another “short squeeze,” a repeat of what happened in January.
As the price increased, short sellers exited their positions by buying stocks, causing the price to go up even further. This is what retail investors were were hoping for.
Ortex estimates that the new new “short squeeze” cost short sellers $754 million. They may consider themselves lucky, as the losses from the January short squeeze amounted to $13 billion from GameStop alone.
AMC and GME have weak fundamentals, especially after their meme stock status has given them inflated valuations. The two companies are heavily dependent on retail and have been hurt by the pandemic.
Regardless, potential short sellers will still have to think twice before shorting these stocks again.