Melvin Capital closed its short position on GameStop on Tuesday afternoon after suffering a major loss, fund manager Gabe Plotkin told CNBC’s Andrew Ross Sorkin.
The traditional video game retailer, the most hated action by hedge funds, was the target of an army of retail investors who battled short sellers in online chat rooms. In the Reddit forum “wallstreetbets” with more than two million subscribers, novice investors encouraged each other to accumulate GameStop shares and options, creating a huge squeeze on the name.
CNBC was unable to confirm the amount of losses the company had with the short position. Citadel and Point72 injected about $ 3 billion into Melvin Capital to support the fund’s finances. Plotkin told Sorkin that speculation that the company would file for bankruptcy is false.
GameStop’s stock more than doubled this week to almost $ 150 each, bringing its January earnings to 685%. The stock was only worth $ 6 four months ago.
GameStop’s shares gained about 60% in pre-market trading on Wednesday, after bursting more than 100% at the start of the session.
Amid GameStop’s explosive explosion, short sellers have accumulated losses of more than $ 5 billion in the year to date, including a loss of $ 917 million on Monday and $ 1.6 billion on Friday , according to data from S3 Partners.
Short seller Andrew Left of Citron Research said on Wednesday that it covered most of its short position on GameStop at a loss. He said earlier that GameStop will drop to $ 20 a share “fast” and called for attacks from the “angry mob” that owns the shares.
Investor Michael Burry said in a tweet now deleted on Tuesday that trading on GameStop is “abnormal, insane and dangerous” and there should be “legal and regulatory repercussions”. Burry achieved fame by betting against the housing bubble and was featured in Michael Lewis’ book “The Big Short”.
The United States Securities and Exchange Commission declined to comment.
Social Capital’s Chamath Palihapitiya jumped into the controversial name, saying in a tweet on Tuesday that it bought call options from GameStop betting the stock would rise. His tweet seemed to intensify the rally in the previous session. The stock ended the day 92% higher at $ 147.98.
Elon Musk after the bell on Tuesday commented on the mania on Twitter and linked to Reddit’s “wallstreetbets” chat room. Tesla’s CEO tweeted to his 42 million followers “Gamestonk !!” The comment seemed to help send GameStop’s shares to a high in Tuesday’s trading.