The meteoric rise in GameStop’s share price is called by most a short press, but that’s not what is happening, says an expert on short interest rates and the market.
Why it matters: This could mean that if and when the short press comes, the price of GameStop could rise significantly higher than current levels.
What is happening: Short sellers piled up in GameStop because of its meteoric share price rise, not the other way around, Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told Axios.
- Over the past year, the number of shares shorted has increased by 12%, while the total dollar in danger has risen by 1,900%, data from S3 show.
- This is a sign that large commitments are coming from hedge funds and institutional investors, which means that the short press has not even started yet.
How it works: In a typical short press, short sellers sold the shares and “rented” shares with the intention of buying them after the share price fell. But they are expressed when the price rises too much and they are forced to exit the trade by buying the stock at a higher price.
- This helps the value of the stock rise because the short sellers increase the momentum and cause the price to rise higher.
- But with GameStop, every time a short seller leaves the market and buys shares, new short sellers come to replace them, keeping the same downward pressure on the price and increasing short interest rates.
What it means: “It tells me what moves the long buyers. It’s not a short cover,” Dusaniwsky said.
- “If that were the case, I would see the stock shortfall continue to decline. For this kind of price shift, I need to see short-term interest rates wiped out.”
- ‘One way I can see short-term interest rates not being wiped out is because the rate is being borrowed for shares.
- “That means shorts don’t come out on a net basis.”