How bad bets on meme stocks led to a $1 billion wipeout

New York CNN — The only bet riskier than buying meme stocks like GameStop may be cheering for their decline. That’s the lesson Wall Street’s short-sellers are learning the hard way this week.

See here: For the first four months of the year, GameStop short-sellers — investors who bet on a stock’s decline — were sitting on $392 million in gains, up nearly 50%. But with this week’s surge, those gains have vanished and left shorts with more than $1.2 billion in paper losses, according to research from S3 Partners.

Nearly $1 billion of that was wiped out Monday alone.

To understand the meme stock phenomenon, it helps to understand a bit of the tribalism underpinning it.

When meme stocks first emerged in 2021, the day traders running up the price of GameStop weren’t a bunch of anti-establishment marauders attacking Wall Street generally — they were going for the short-sellers, regarded by many, from retail investors to CEOs like Elon Musk, to be the most reviled traders in finance. After all, no one likes the guy who gets rich off of others’ failings. (Short-sellers argue, however, that they play an important role in preventing market bubbles.)