GameStop shares sink in retail retreat

GameStop shares did not have much game on Tuesday, as the stock at the center of a recent market trading frenzy lost more than half of its value.

Silver prices also retreated as the frenetic social media-driven trading that has stunned global financial markets appeared to fizzle, at least for now.

The video game retailer's shares, which have whipsawed wildly with hedge funds and other investors making or losing billions of dollars, sank by $135 or 60 percent in value, to close on Tuesday at $90 per share. The stock had hit a 52-week intra-day high of $483 on Jan 28.

Other so-called meme stocks caught up in the Reddit rally also sold off.

AMC Entertainment Holdings, the movie-theater operator that is majority-owned by Dalian Wanda Group in Beijing, stumbled $5.48, or by 41.2 percent, to finish Tuesday at $7.82.

"The rally is likely over (since) the short positions are pretty well taken care of," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "That's the game you play when you do this thing. It can work for a while until it stops working, and when it stops working, it reverses pretty quickly."

Short selling is a stock market practice in which someone borrows a stock from a holder and then sells it with the expectation that the stock's price will fall.

For example, if the short-seller borrows the shares at $50, sells them at that price and later buys them back at $20 to return to the lender, the profit is $30 a share.

However, a "short squeeze "occurs if the stock does not fall, or even rises, and the borrower is forced to buy the shares back. The activity in which the "shorts "scramble to buy the shares back is called "short-covering".

In the case of GameStop and the other stocks, it appeared the price run-up, largely generated by the WallStreetBets online forum on Reddit, was to financially hurt the Wall Street hedge funds that were short the shares.

Short-sellers saw paper gains of $3.39 billion during Tuesday's session, said analytics company S3 Partners, which tracks the short side of the market. Year-to-date realized and unrealized losses for shorts, however, recently stood at $9.2 billion.

US Secretary Treasury Janet Yellen has requested a meeting to discuss recent market volatility following the social-media-fueled buying frenzy.

Separately, some observers wonder whether the stock market is approaching bubble territory. US stocks have roared higher by roughly 70 percent since March.

"You might say a bubble occurs when people think that the market is going to go up but worry that it may drop," said Robert Shiller, a Yale University professor who has won a Nobel prize for his work on explaining stock price movements. "That is where we are."

Agencies contributed to this story.