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GameStop Stock: Shorts Are Running Out of Shares

With short interest on the rise, short sellers need to be more resourceful to continue betting against GME shares.

The battle between GameStop  (GME) - Get Free Report shareholders and short sellers continues. Although the scenario is very different than it was in early 2021, short sellers will continue to bet massively against GameStop shares until they reach scarcity levels.

Several recent relevant events in the macroeconomic scenario have strongly influenced the sentiment of investors in highly speculative stocks like GameStop.

Let's take a closer look at some relevant facts regarding GameStop stock.

Figure 1: GameStop Stock: Shorts Are Running Out of Shares

Figure 1: GameStop Stock: Shorts Are Running Out of Shares

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Utilization Rate at Maximum Levels for 21 Consecutive Days

According to Ortex data, it has been more than 21 days since GameStop's utilization rate stood at 100%. If correct, this rate implies that there are no more shares available to be lent for shorting. Thus, theoretically, an eventual buy-in can occur if lenders decide to recall their shares. This may cause a short squeeze.

But this does not mean that short sellers cannot continue shorting the stock. It just means that they need to seek other resources to find available shares.

Speculation is running rife among GameStop shareholders on Reddit. A few weeks ago, the U.S. Justice Department opened an investigation into possible trading irregularities by 30 short selling firms, including Melvin Capital, a firm that has bet heavily against GameStop since 2014.

Even the investigation hasn't concluded yet, GameStop holders hope that the authorities can uncover the truth.

Meanwhile, GME Performance Is In Line With the Broad Market

Indexes such as the S&P 500  (SPY) - Get Free Report and the Russell 1000  (IWB) - Get Free Report are some of the best indicators of how the U.S. stock market is performing. With GameStop's recent stock performance being in line with those indexes, it suggests that even with its “meme appeal” GameStop is proving to be sensitive to market trends and fundamentals.

Figure 2: GME, SPY, RUI and VIX 1-month period performance.

Figure 2: GME, SPY, RUI and VIX 1-month period performance.

Uncertainty in the stock market hurts investor sentiment in general, and many who have profitable positions opt to reduce or sell them. This seems to be no different with GameStop stock.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)