Squeezed: Citron Capital Shorts GameStop

15 Pages Posted: 21 Oct 2021

See all articles by Richard B. Evans

Richard B. Evans

University of Virginia - Darden School of Business

Aldo Sesia

University of Virginia - Darden School of Business

Abstract

The case examines the short selling of GameStop by hedge fund Citron Capital. The valuation case for short selling GameStop is explored, along with the actual market mechanics of short selling a stock (i.e., rebate rates, securities lending collateral, and loan recalls). In addition to the costs, additional risks of short selling, including the potential for a short squeeze, are introduced.

Excerpt

Rev. Jul. 30, 2021

Squeezed: Citron Capital Shorts GameStop

During the evening of January 26, 2021, Andrew Left, founder and managing partner at Citron Research, may have had trouble getting to sleep. Over the previous few days, he had become a target of retail investors' wrath because of his bearish views on GameStop Corp. (GameStop) and his short position in the stock held through his affiliate hedge fund, Citron Capital LLC (Citron). Left had shorted GameStop when its shares were trading in the $40 range, but GameStop's skyrocketing price had made that trading decision less appealing by the hour.

On January 21, Left had posted a YouTube video outlining his bearish thesis on GameStop and five reasons why he believed GameStop shares were overvalued. He had predicted that the share price would drop quickly to $20 from around $40 at the time of the video. Despite—or perhaps because of—Left's outlook, GameStop's share price over the following three trading days jumped nearly 280%, closing on the 26th at $147.98 per share. (See Exhibit 1.)

. . .

Keywords: GameStop, hedge fund, Citron Capital, short selling, short squeeze, rebate rate, fail-to-deliver, short interest, equity lending

Suggested Citation

Evans, Richard B. and Sesia, Aldo, Squeezed: Citron Capital Shorts GameStop. Darden Case No. UVA-F-1983, Available at SSRN: https://ssrn.com/abstract=3942608 or http://dx.doi.org/10.2139/ssrn.3942608

Richard B. Evans (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Aldo Sesia

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
320
PlumX Metrics