GameStop plummets 35% as short-squeeze conditions dissipate

• GameStop shares are down big on Monday as short-squeeze conditions dissipate.
• Short interest in GameStop fell to 39% from 114% in mid-January, according to data from IHS Markit.
• As brokerages limit trading in the name, it's getting more difficult for traders to keep up the short-squeeze.

GameStop shares plummeted 35% on Monday before recovering slightly as the short-squeeze conditions that brought in Reddit's day trader army begin to dissipate.

Short interest in shares of GameStop fell to 39% of the float, from 114% in mid-January, according to IHS Markit data. And a tweet from S3 Partners Ihor Dusaniwsky on Monday shows shares shorted have decreased by 35.2 million over the last week alone.

GameStop has been big news in the markets for weeks after the stock became a target of Reddit's Wall Street Bets forum back on January 11.

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It all started after activist investor-and Chewy co-founder-Ryan Cohen wrote a letter to the beleaguered video game retailer arguing changes needed to be made and new board members added to the company.

Then traders on Reddit found out GameStop had a high short interest rate and realized they could force a short-squeeze, causing shares to skyrocket.

Since then GameStop shares spiked some 1,625% across all of January and over 400% last week alone.

While the move led to huge gains for WallStreetBets traders, it also caused billions in losses to pile up for short-sellers and institutional investors, some of whom had to be bailed out.

Estimates by data provider Ortex on Friday showed that short-sellers were sitting on losses of around $19 billion in GameStop alone in 2021. And even after Monday's move lower, shorts are down some $13 billion in January, according to S3 Partners.

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Still, the blood bath for short-sellers may be over as it seems Reddit traders have switched their focus to silver.

Prices have surged for the precious metal, causing silver miners to skyrocket as well.

For weeks Reddit traders had taken advantage of GameStop's high short interest by flooding the stock with new buyers causing a short squeeze. Now, with multiple brokerages limiting trading in the video game retailer and short interest falling, traders aren't getting the same meteoric returns that have been seen in the last two weeks.

"Short squeezes can only last as long as there is a large short position in a stock. Once that dissipates, the situation changes completely," said Matt Maley, chief market strategist at Miller Tabak & Co.

GameStop traded down 31.08% at $223.99 as of Monday's close.