Short sellers of GameStop (NYSE: GME) incurred losses nearing $2.2 billion during Monday’s substantial market upswing.

San Jose, California May 14, 2024 (EMWNews.com) – According to data from S3 Partners, short-selling hedge funds incurred a mark-to-market loss of $838 million in GameStop amidst Monday’s remarkable surge. Ihor Dusaniwsky, S3’s Managing Director of Predictive Analytics, highlighted the potential for short covering in the stock, citing its high squeeze score even before the day’s trading began.

The abrupt ascent in GameStop’s stock appears to have been instigated by “Roaring Kitty,” previously known for rallying a legion of day traders around the video game retailer in 2021. This recent rally, characterized by a 74% surge, has resulted in significant losses for short-selling hedge funds, amounting to $838 million, as reported by S3 Partners.

The phenomenon of “meme stocks” witnessed individual investors targeting short sellers and hedge funds skeptical of GameStop’s prospects, compelling them to cover their short positions and consequently driving up stock prices. Currently, the short position in GameStop shares represents over 24% of its freely tradable shares, or float, according to FactSet.

In May alone, short sellers in GameStop have reported losses totaling $1.24 billion, according to S3. Dusaniwsky anticipates further upward pressure on GameStop’s stock price due to squeeze-related buy-to-covers, while also expecting new short sellers to enter the trade, particularly if the stock price hovers around or exceeds the $30 mark.

Short selling involves borrowing shares with the expectation of profiting from a subsequent decline in market value. GameStop wasn’t the sole beneficiary of Monday’s meme stock surge, as AMC surged 15% and Reddit traded 9% higher.

Dusaniwsky cautioned that short sellers might encounter a tumultuous and challenging journey with these stocks moving forward.