For GameStop stock (NYSE: GME), the stars seem to be aligned once again, which might lead to a fresh round of short squeezes. This seems like it would be ideal for a tight squeeze, right?
Due to the popularity of memes, GameStop’s stock has once again attracted the attention of short-sellers. Short-sellers have had to be inventive to survive as the short interest in GameStop stock has soared.
During the May 25 trading session, GameStop stock surged over 30 percent, offering an ideal investment opportunity. Short-sellers may be in for a world of hurt if they follow this path.
Shares of GameStop jumped 29% during the May 25 trading session. In light of the considerable increases short sellers face in borrowing costs, one plausible explanation for the stock’s recent climb might be demand for GME shares.
For example, on May 25th, the cost of borrowing for GME stock rose to over 104%, making it a “difficult to borrow” company. GME’s cost-to-borrow rate is shown graphically over time. There have been record-breaking statistics in the last several days.
Several variables affect the price of shorting, including utilization (the number of shortable shares available), the number of borrowable shares, liquidity, the number of shares accessible, volatility, and other factors that might generate pricing anomalies.
If GameStop has met any of the criteria above, it may have produced a rise in the key indicator and blocked short-sellers from taking advantage. According to GameStop’s 10-K filing, it is one of the most significant dangers to the company’s stock, but it is also one of the main reasons why retail investors got into the game. Short squeeze catalysts may be on the horizon:
Gaming retailer GameStop continues to be heavily shorted, with short interest levels over 20% of its relatively small 63 million share float (compared to AMC’s 513 million).
Direct Registration System registrations account for at least 9 million shares of the total float, according to the available information. DRS is designed to prevent short-sellers from getting their hands on ordinary investors’ shares.
For more than 70 days in a row, GameStop’s utilization rate has been over 100%. Short sellers may no longer borrow shares at this price if it is correct. Keep in mind that this does not exclude further shorting of the stock by investors. It implies that they’ll have to go elsewhere to locate shares that are still accessible.
For the first time in a year, the cost of borrowing is at its highest level. Short sellers are more sensitive to pressure from GME bulls since they must pay higher costs to gamble against GameStop.
When GameStop’s stock price soared in January 2021, it was due in large part to the company’s rising public profile, according to an SEC report on the company’s trading behavior. In addition, retail investors’ newfound interest in the company’s stock and GameStop’s “meme stock power” seem to be driving a rise in purchase volume.
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