Melvin Capital shorted GameStop — and a Reddit army squeezed it for a 53% loss in a month

By late 2020, GameStop — a struggling video-game retailer — was one of the most heavily shorted stocks in the market: roughly 140% of its available shares had been sold short by hedge funds betting the price would fall. One of the biggest short-sellers was Melvin Capital, a prominent hedge fund. Then traders on the Reddit forum r/wallstreetbets, led by figures like Keith Gill ('Roaring Kitty'), noticed the setup and saw an opportunity.

Starting in January 2021, the forum's members began buying GameStop shares and call options en masse, urging each other to hold. As the price rose, the hedge funds that had shorted the stock were forced to buy shares to cover their positions — which pushed the price up further, in a self-reinforcing 'short squeeze.' GameStop's stock, which had traded around $20, surged to a peak above $480 in days.

The losses for short-sellers were enormous. Melvin Capital lost about 53% of its value in January alone, and survived only after a $2.75 billion rescue from rival firms Citadel and Point72. The episode triggered a political firestorm — especially after the brokerage Robinhood temporarily restricted buying of GameStop, citing clearing-house collateral requirements. Melvin never recovered; it shut down in 2022. The squeeze became a defining case of how a coordinated crowd can exploit a crowded short.