GameStop brief sellers are nonetheless not giving up, regardless of dropping practically $ 20 billion this month

People walk past a GameStop store in Midtown Manhattan on January 27, 2021 in New York City.

Michael M. Santiago | Getty Images

The astronomical rally at GameStop has inflicted huge losses on short sellers of nearly $ 20 billion this year, but they are not budging.

Hedge fund short sales suffered a $ 19.75 billion drop in market value at the brick and mortar video game retailer, including a loss of nearly $ 8 billion on Friday as the stock rose further, according to S3 Partner.

Still, short sellers mostly hold onto their bearish positions or are replaced by new hedge funds willing to bet against the stock. GameStop stock that was borrowed and sold short is down just under 5 million in the past week, which means an 8% decline in short rates, according to S3. Most of the short coverage came on Thursday when the stock fell for the first time in six days.

"I keep hearing that 'most of the GME short films have been treated' – totally wrong," said Ihor Dusaniwsky, S3 managing director for predictive analytics, in an email. "In fact, the data shows that the overall short sale rate hasn't changed too much."

"While the 'Value Shorts' that used to be in GME were squeezed, most of the borrowed stocks returned on the back of the buy-to-cover were trimmed with new Momentum shorts in the name" , added Dusanivsky.

GameStop's shares, as well as other sharply shortened stocks, rose again on Friday after Robinhood announced it would resume limited trading in previously restricted securities. The rally took GameStop's rally to over 400% this week and over 1,600% this month.

The video game inventory starred the show on WallStreetBets Reddit forum, which quickly grew to over five million in membership. A wave of day traders continued to encourage each other to pile up stocks and call options in GameStop, resulting in a massive short squeeze that hurt hedge funds betting against the name.

The GameStop stock borrowing fee – or the cost of borrowing stocks for the purpose of short selling – rose to 29.32% for existing short positions and 50% for new short positions, S3 said.

"If most of the short positions were covered, we wouldn't be seeing stocklending rates at these high levels – now you could borrow single digits of GME stock as the supply of stock borrowed loans has increased after all the 'supposed' buy- to be returned covers, "Dusanivsky said.

GameStop remains the most abbreviated name on the market right now, as the percentage of stocks available for trading is 113.31%, S3 said.

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