The Short Squeeze Risk

$GameStop(GME.US)$ GameStop makes it clear in its Form 10-K that its shares are highly susceptible to a short squeeze due to a "sudden increase in demand for shares of our Class A Common Stock that largely exceeds supply has led to, and may continue to lead to, extreme price volatility in shares of our Class A Common Stock."

Skeptical of GameStop’s long-term prospects, many institutional investors have raised their short positions or unloaded their long positions in GME. As a result, today, it is estimated that about 70% of the total float is held by retail investors.

As GameStop also reported in its quarterly filing, approximately 71.8 million shares – equivalent to almost 30% of its total float – are registered by its shareholders directly with the company’s transfer agent.

This means that these shares are not held by brokerages and, therefore, cannot be lent to short sellers. In theory, the fewer shares there are available for lending, the higher borrow fees will be; consequently, it will be more difficult for short sellers to cover their positions in an event of a short squeeze.