After Sky Rocketing, the GameStop Short Squeeze Saga continues, but it’s less unusual than you might think

Pricing action on GameStop

GME
has been extreme. The stock is up 20x from this time last year and 4x a week ago. The reason seems to be a short-term pressure as the stock has a high short-term interest. However, volatility around short-term pressure is as unusual as you might think.

No new news

During this period of great volatility from GameStop there does not appear to have been any significant release from the company. Two weeks ago, on January 11, the video game vendor launched a positive sale of the same store over the holidays, and the company changed their board members to lead more online sales focus. . Lack of news indicates that short-term pressure could be behind price movements.

Apparently many investors felt that GameStop was a reasonably short candidate. Sales have been struggling in recent years, as online sales are accelerating, and social pace measures to reduce the pandemic have usually exacerbated that trend. Thus, some investors were betting that GameStop would rather go down in price by selling the short shares.

The challenge for doing that is you have to borrow the shares. If you borrow something you have to take it back. Especially since these transactions often happen on the fringes ie with borrowed money. So those short GameStop, seeing edge calls is probably the worst time as the stock stocks are in price, aided by the Reddit subreddit wallstreetbets promoting the other side of the trade. For example, Melvin Capital’s hedge fund appears to be receiving a cash injection after a loss believed to come from GameStop, and other short positions.

Other Short Stocks

GameStop isn’t the only stock rising without obvious news. Pool bed and beyond

BBBY
and AMC have all been very volatile in trade recently as well. What these three stocks have in common is that they are among the shortest segments in the stock market.

It is estimated that nearly 140% of its bog has short-term interest for GameStop. That is very high. Short interest for Bed Bath and Beyond and AMC is close to 70%. These are large numbers, a short interest of 20% would normally be considered high. These stocks have a very short interest.

Short Squeeze Search

Short-term pressures that cause price volatility are less common. Researchers Baixiao Liu and Wei Xu in their paper ‘Short Squeeze’ have found that a stock that rises 20% in a few hours is, in fact, the average yield. What we see with GameStop may look unusual, but it is not completely unique.

Volkswagen

In 2008 Volkswagen, like GameStop, favored short sellers, but saw a sharp rise in price over a short period in October 2008 when the stock doubled near the end of the month. What happened next? Volkwagen fell back in price, but it took a few months to do so. Up quickly, down slowly. Researchers have also seen that pattern, short-term stress candidates may fall back in the months after a history-based collection.

This suggests that, if history is any guide, GameStop could fall back much more slowly than it has gone up instead of falling back to earth, although its path will be ultimately get information from its business results. But stocks that jump on a short burst are not so uncommon, and that may not be a sign that the market is seeing a trend.