Melvin Capital, hedge fund targeted by Reddit board, closed out of GameStop short position Tuesday

Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, manager of the fund Gabe Plotkin told CNBC’s Andrew Ross Sorkin.

The brick-and-mortar videogame retailer, hedge funds’ most-hated stock, was targeted by an army of retail investors who marshaled against short sellers in online chat rooms. In the Reddit forum “wallstreetbets” with more than two million subscribers, rookie investors encouraged each other to pile into GameStop’s equity and call options, creating massive short squeezes in the name.

CNBC could not confirm the amount of losses the firm took on the short position. Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up the fund’s finances. Plotkin told Sorkin that the speculation that the firm would file for bankruptcy is false.

GameStop shares have more than doubled this week alone to nearly $150 apiece, driving its January gains to 685%. The stock was worth just $6 four months ago. GameStop shares traded off its highs in premarket trading Wednesday, and last traded up 65%.

Amid GameStop’s explosive rally, short sellers have accumulated a mark-to-market loss of more than $5 billion year to date in the stock, including a loss of $917 million on Monday and $1.6 billion on Friday, according to data from S3 Partners.

Investor Michael Burry said in a now-deleted tweet Tuesday that trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.” Burry shot to fame by betting against the housing bubble and was featured in Michael Lewis’ book “The Big Short.”

The U.S. Securities and Exchange Commission declined to comment.

Social Capital’s Chamath Palihapitiya jumped into the controversial name, saying in a Tuesday tweet that he bought GameStop call options betting the stock will go higher. His tweet seemed to intensify the rally in the previous session. The stock ended the day 92% higher at $147.98.

Also fueling the fire is Elon Musk, who commented on the mania on Twitter and linked to the “wallstreetbets” Reddit chat room. The Tesla CEO tweeted to his 42 million followers “Gamestonk!!” The comment sent GameStop shares soaring in extended trading Tuesday.

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