Wednesday 27 January 2021 11:56 am

Melvin Capital closes Gamestop short position amid Reddit feud

The hedge fund targeted by Reddit investors Melvin Capital reportedly closed out its short position in Gamestop on Tuesday. 

The bricks-and-mortar retailer was targeted by an army of Reddit investors from the forum “Wall Street Bets” which boasts more than 2m subscribers. 

Manager of the fund Gabe Plotkin told CNBC it had closed out its short position after taking a huge loss.

Read more: Pearson and Cineworld shares jump amid ‘manic’ Reddit short-selling feud

Last week short-seller Citron Research placed a bet against the stock and that Gamestop was “pretty much in terminal decline”. It prompted Reddit traders to push the retailer’s stock through the roof, declaring: “We want to see the loss porn”. 

Shares in Gamestop closed 93 per cent higher on Tuesday and have gained another 66 per cent in pre-market trading.  

As traders artificially boost Gamestop’s price there are concerns about potential securities fraud and market manipulation. “I would hardly class this as the smooth functioning of financial markets and the SEC will be starting to pay attention,” Neil Wilson, chief market analyst at said. 

If Melvin Capital has closed its position and there are no shorts left to target “it could be the moment for the dump after the pump,” Wilson said. “Having said that, the dealer gamma squeeze is also to be considered and may allow for further upside on the stock.” 

Read more: Reddit day traders out for blood as they tell GameStop short-sellers: ‘We want to see the loss porn’

There is growing speculation that the Reddit battle is fuelling a major short squeeze in the UK. Education publisher Pearson led the FTSE 100 risers, up nearly 10 per cent while the embattled Cineworld jumped 10.4 per cent by lunchtime. 

Both companies are among the most shorted London-listed stocks, with short positions of 8.7 per cent ad 8.9 per cent respectively, according to the Short Interest Tracker website.