Short sellers of GameStop suffered losses nearing $1 billion during Monday's massive surge.

On March 29, 2022, the logo and trading details for GameStop are showcased on a screen at the New York Stock Exchange, as captured by Brendan McDermid.

Monday's astounding surge in GameStop inflicted nearly $1 billion in losses on short sellers, as reported by data from S3 Partners. With GameStop's meteoric 74% rise, hedge funds engaged in short-selling witnessed a staggering $838 million mark-to-market loss in the traditional video game retailer, according to S3 Partners.

Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3, anticipates a surge in short covering for GameStop, citing the stock's pre-existing 100/100 squeeze score before the day's trading commenced.

The sudden upsurge in GameStop's stock appears to have been triggered by "Roaring Kitty," previously known for rallying day traders to invest in the gaming stock in 2021, a moment that etched itself in Wall Street history. Keith Gill, also recognized by his internet moniker, posted a picture on X depicting a video gamer leaning forward in their chair, seemingly signaling a serious approach to the game. This marked Gill's first post on the platform since 2021.

The frenzy surrounding "meme stocks" saw individual investors targeting short sellers and hedge funds that held bearish sentiments about GameStop and other companies, compelling them to cover their short positions and propelling the target stocks' prices upward.

Presently, the short position in GameStop shares represents over 24% of all freely tradable shares, known as the float, according to FactSet.

 Short sellers in GameStop have faced losses totaling $1.24 billion in May alone, as per S3 data, inclusive of Monday's downturn.

"Squeeze-related buy-to-covers will likely contribute to pushing GME's stock price higher. Additionally, anticipate new short sellers entering this trade, particularly as GME stock hovers around or exceeds the $30 threshold, which presents attractive entry points for new short selling," remarked Dusaniwsky.

Short selling involves investors borrowing shares of a stock with the anticipation that the market value will drop below the borrowing price when it's time to return the borrowed shares.

On Monday, GameStop wasn't the sole meme stock experiencing an upswing. AMC surged by 15%, while Reddit saw a 9% increase.

"Short sellers might be in for a turbulent and challenging journey with these stocks," Dusaniwsky cautioned.

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