An analysis of the losses incurred by hedge funds in the GameStop crusade launched by retail investors indicates that the “short squeeze” has cost short sellers as much as $19 billion already.
Data provider Ortex said that according to their analysis provided to Business Insider, those targeted by the “short squeeze” operation by members of a Reddit investment group were headed towards losing as much as $19 billion.
And that’s only by the end of Friday.
The celebrated action by retail investors has been hailed as a David and Goliath story by some, but others have criticized it as a manipulation of the market.
The scheme developed after the Reddit group took notice of hedge funds that were over-leveraging in their bet against GameStop, a brick and mortar video game reseller. By calling on their members to buy the stock, the Reddit retail investors drove the price up and forced the bettors against GameStop into a precarious and costly position.
The “short squeeze” operation drove the price of GameStock stock to skyrocket from about $5 a share in August, to $325 a share by the end of Friday’s stock market session.
That increase of 6,400% in the value of the stock has forced one hedge fund to secure emergency funding to pay for their losses.
Ortex called the battle over GameStop the “first major battleground in an emerging war between individual investors and Wall Street institutions,” in a blog post on Thursday.
They estimate that other short sellers have lost more than $70 billion on U.S. companies just this year.
“Regardless of the final outcome, the GameStop saga points to an increasing democratisation of the markets, with fairer access and a more level playing field. The information advantage that has maintained the status quo for so long is crumbling, and that has far-reaching consequences for investing, markets and the industry itself,” they explained.
Critics of the Reddit rebellion have noted that many retail investors are almost certainly going to lose a lot of money if and when the GameStop stock comes crashing down to Earth from the artificially inflated price.
Author : Carlos Garcia
Source : The Blaze : Reddit GameStop crusade has cost short sellers $19 billion according to one analysis