Analysts at Goldman Sachs later noted that short interest exceeding 100 percent of a company's public had only occurred 15 times in the prior 10 years. On January 22, 2021, approximately 140 percent of GameStop's public float had been sold short, meaning some shorted shares had been re-lent and shorted again. As a result, GameStop's stock price declined, leading many institutional investors to short sell the stock.
GameStop, an American chain of brick-and-mortar video game stores, had struggled in recent years due to competition from digital distribution services, as well as the economic effects of the COVID-19 pandemic, which reduced the number of people who shopped in-person. This can result in a cascade of stock purchases and an even bigger jump of the share price. Purchasing the stock to cover their short positions raises the price of the shorted stock, thus triggering more short sellers to cover their positions by buying the stock. Short sellers are then forced to buy back the stock they had initially sold, in an effort to keep their losses from mounting. Short sellers are exposed to a risk of short squeezing, which occurs when the shorted stock jumps in value due, for instance, to a sudden piece of favorable news. This is in contrast with taking a long position (simply owning the stock), where the investor's loss is limited to the cost of their initial investment. The practice carries an unlimited risk of losses, because there is no inherent limit to how high a stock's price can rise. Short selling is a finance practice in which an investor, known as the short-seller, borrows shares and immediately sells them, hoping to buy them back later ("covering") at a lower price, return the borrowed shares (plus interest) to the lender and profit off the difference. Main articles: Short (finance) and Short squeeze On March 25, the stock recovered dramatically, rising by 53 percent. On March 24, the GameStop stock price fell 34 percent to $120.34 per share after earnings were released and the company announced plans for issuing a new secondary stock offering. On February 24, the GameStop stock price doubled within a 90-minute period, and then averaged in the neighborhood of $200 per share for another month. The unusually high price and volatility continued after the peak in late January. House Committee on Financial Services held a congressional hearing on the incident. Dozens of class action lawsuits have been filed against Robinhood in U.S. This decision attracted criticism and accusations of market manipulation from prominent politicians and businesspeople from across the political spectrum.
On January 28, some brokerages, particularly app-based brokerage services such as Robinhood, halted the buying of GameStop and other securities, citing the next day their inability to post sufficient collateral at clearing houses to execute their clients' orders. The price of many other heavily shorted securities and cryptocurrencies also increased. At its height, on January 28, the short squeeze caused the retailer's stock price to reach a pre-market value of over US$500 per share ($125 split-adjusted), nearly 30 times the $17.25 valuation at the beginning of the month. The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated. Approximately 140 percent of GameStop's public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even further. In January 2021, a short squeeze of the stock of the American video game retailer GameStop ( NYSE: GME) and other securities took place, causing major financial consequences for certain hedge funds and large losses for short sellers. Closing price and trade volume of GameStop Corp.
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