Squeezed: Citron Capital Shorts GameStop

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.<br><br>Excerpt<br><br>Rev. Jul. 30, 2021<br><br>Squeezed: Citron Capital Shorts GameStop<br><br>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&nbsp;range, but GameStop's skyrocketing price had made that trading decision less appealing by the hour.<br><br>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.)<br><br>. . .<br>