Short-sellers are capitulating. The wild price action in GameStop (NYSE: GME) stock is causing short-sellers to throw in the towel and cover their positions.

Melvin Capital and Citron Research closed out their short positions, with the latter's Andrew Left saying he did so at "a loss of 100%."

Image source: Getty Images.

Piling on

No doubt the white flag will have the video game retailer's bulls rejoicing as the stock nearly doubled yesterday and is up 685% in 2021. The support from investors who are long the stock, coupled with the short squeeze initiated by mildly positive news for GameStop has caused its shares to go parabolic.

Elon Musk, who has sparred with short-sellers over Tesla, tweeted out a link to a Reddit thread about GameStop's meteoric rise, which further encouraged the bulls who sent the stock up another 67% in premarket trading.

Bloomberg quoted famed investor Michael Burry as saying GameStop's rally was "unnatural, insane, and dangerous."

While there are hopeful signs for the retailer, such as activist investor Ryan Cohen being appointed to the board of directors along with two other nominees, and a plan to have the company focus on its most profitable efforts, the stock has become disconnected from reality and GameStop's fundamentals.

So while older shorts are being squeezed out of their position, other short-sellers are establishing new ones, making the probability quite high they will profit handsomely when GameStop stock returns to earth, as it must.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.