Hedge fund Melvin Capital is down $4.5 billion after epic squeeze by Reddit traders, report says

Betting against the crowd isn't always smart. 

Hedge fund Melvin Capital reportedly lost $4.5 billion in assets value in January – a 53 percent drop – after its massive bet that GameStop's stock price will fall turned sour, the Financial Times reported Sunday. And that's after a $2.75 billion cash infusion from previous investors, who jumped in to save the fund from collapse. 

For an explainer of what happened, go here, but the short version is that Melvin, as well as some other funds, bet against GameStop by shorting massive amounts of its stock (shorting means selling the stock in the hope you'll be able to rebuy cheaper later). Reddit traders that frequent the subreddit r/wallstreetbets noticed that GameStop's stock was ridiculously (perhaps unfairly) over-shorted, and they responded by buying the stock en masse, driving the price up higher, forcing shorters to buy the stock to cover their losses (this is know as a short squeeze). This, in turn, put enormous pressure on Melvin and other shorters; eventually, Melvin said it exited its short position on GameStop, likely at a massive loss.  Read more...

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