One of the most popular stocks of 2021, GameStop (NYSE:GME) has been out of the limelight for much of the past year. Despite various short-term spikes and declines in GME stock, it’s been a rather tedious trend lower for this video-game retailer over the better part of the past two years.
That said, interest appears to be building once again around the potential for a short squeeze in GameStop. Despite being down on the week, shares of GME stock have ticked more than 2% higher, as some compelling short interest data comes in.
According to data from Fintel, GameStop’s cost to borrow doubled from yesterday going into today. The cost to borrow jumped from less than 10% yesterday to more than 20%, before settling back down. Additionally, GameStop’s short interest as a percentage of its float sits at around 21% at the time of writing, which is high, even compared to other highly shorted meme-stock names.
These factors are key focal points for speculators looking to time a potential short squeeze. Let’s dive into what this all means and why GME stock is on the move today.
What to Watch for a Potential Short Squeeze in GME Stock
Let’s start out with what a short squeeze is, for readers who may have heard the term but want a concise explanation.
Short sellers make money when a stock goes down, by borrowing a given stock, selling it, and hoping to buy said stock back at a later date at a lower price (pocketing the difference). This practice, typically done by hedge funds and sophisticated investors, can be highly profitable. However, there’s no limit to the potential losses with short selling, as stocks can theoretically go to infinity. Thus, as prices surge, and losses mount for short sellers, many may feel forced to unwind their positions, out of fear that their losses may become too much to bear.
That’s a short squeeze, and it’s what many retail investors are constantly on watch for when it comes to GME stock. Why? Well, this is a stock that’s had short squeezes in the past, with the stock surging more than 100-fold in the matter of a few months in early 2021.
High borrow rates matter, because if the cost of holding a short position rises, more short sellers may be enticed to unwind their positions. Additionally, if the amount of shares available to borrow drop, replacing them may become more difficult (and costly), meaning a short position may become less desirable. These factors appear to be trending in the right direction for speculators, many of whom are watching these metrics closely, when looking to time when to buy this stock.
On the date of publication, Chris MacDonald did not have (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.