GME Stock: Short Sellers Are Sleepwalking Into Another Squeeze

$GameStop (GME.US)$ GameStop launched its NFT marketplace to a relatively muted reception. NFT trades had already fallen three-quarters since January, and traders assumed the game retailer had missed yet another party. Shares would eventually drop another 25%.

Investor pessimism, however, has quietly turned GME stock into a short-squeeze candidate. Sagging trading volume means that it would take traders almost 17 days to cover their short positions, up from three days in July. And with 30% of GameStop shares now directly held by transfer agents, the Texas-based firm has become a trap for short sellers who didn’t get the memo the first time around.

In 2014, I shorted shares of watchmaker Movado $Movado (MOV.US)$ as a bet on rival Apple’s $Apple (AAPL.US)$ newly launched smartwatch. Shares of Movado would slide from $45 to $25 before I closed the position at a significant profit.

The emotional toll, however, was immense. Monitoring shares of the legacy firm was agonizing; every day brought new fears of unlimited losses. And had I stayed in the position, the volatile short sale would have cratered my client’s portfolio when shares jumped to $50 several years later. Unlike buying stocks, shorting them involves selling more when stocks go down and raises the risks of a wipeout.

Nevertheless, many institutional investors fail to remember the lessons of unhedged short-selling. Memories of meme stock blowups from early 2021 are fading. And falling markets are tempting short-sellers back into firms from Bed, Bath & Beyond $Bed Bath & Beyond Inc (BBBY.US)$ to electric charging station EVgo $EVgo Inc (EVGO.US)$ .