A major aspect of the rise of stocks like GameStop is the use of leverage by hedge funds. The r/WallStreetBets crowd is using that leverage against them.
What it means: Because hedge funds are using borrowed money to place bigger bets, they have to exit positions at certain levels or risk losing potentially infinite sums of their clients’ money and their own on short positions.
The bottom line: Melvin Capital, which had vociferously taken a short position in GameStop, closed out that position Tuesday after taking a huge loss and received a cash infusion of nearly $3 billion from Citadel and Point72 to shore up its finances.
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