The rapid collapse of SVB Financial Group (NASDAQ:SIVB) subsidiary Silicon Valley Bank has shocked market participants, as the largest bank failure since 2008. However, GameStop (NYSE:GME) stock holders have grasped onto a silver lining.
Last week marked the ninth-straight week of hedge funds selling off financial and bank stocks. While selling out of these positions, hedge funds also increased their bearish bets on banks. Meanwhile, Goldman Sachs noted that “The ratio of bullish to bearish positions has fallen to more than an eight-year low.”
This has led to GME stock holders calling for a short squeeze.
Are Shorts going to be the Catalyst for the Mother of All Short Squeezes? Lol#GME #Gamestop https://t.co/ubinUeyQvf pic.twitter.com/qzrQ5v6z5C
— Badasstrader.loopring.eth 🏴☠️ (@BadassTrader69) March 11, 2023
The connection between increased short positioning in financial and banking stocks leading to a short squeeze in GME is still up in the air.
As of Feb. 28, there were 56.85 million shares of GME sold short with a total value of $1.09 million. That’s equivalent to a short interest as a percentage of float of 22.10%. Generally, a short interest above 10% is considered high, while a short interest above 20% is considered very high.
GME Shareholders Call for Short Squeeze
Others shareholders have pointed out that Vanguard and BlackRock (NYSE:BLK) are the largest shareholders of SVB, which could potentially benefit GME. As of Dec. 31, Vanguard owned 6.65 million shares of SVB, which accounted for a minuscule 0.04% of its portfolio. BlackRock owned 4.76 million shares, which accounted for 0.03% of its portfolio.
Shareholders have argued that Vanguard and BlackRock will be forced to hedge their positions by selling out of long positions and recalling short GME shares due to their losses in SVB. However, this doesn’t seem likely because SVB is a tiny portion of the two institutions’ portfolios. As of Dec. 31, Vanguard owned 24.66 million shares of GME, making it the second-largest shareholder of the company. BlackRock is the third-largest shareholder with 21.98million shares.
In fact, it seems more likely that GME will experience a short squeeze primarily based on short interest rather than the collapse of Silicon Valley Bank. The collapse of the bank has resulted in increased short positioning in financial and banking stocks, while the premise of a massive short squeeze in GME because of SVB seems like a stretch.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
