While Melvin Capital, which needed a $2.75 billion infusion from the money managers Point72 and Citadel on Monday, appeared to be the worst hit, Point72 itself was also suffering. By the time markets closed on Wednesday, returns at the firm, which is run by the billionaire Mets owner Steven A. Cohen, had fallen nearly 15 percent year to date, according to a person with knowledge of the results. Part of the problem: A longstanding investment of roughly $1 billion that Point72 had made in Melvin, which manages money on Point72’s behalf.
That same evening, returns at Citadel, the large Chicago asset-management firm, were down by single digits, according to a person familiar with Citadel’s results. Citadel was also exposed to the market turmoil through its separate securities division, where it executes orders to buy and sell stock from Robinhood customers as part of an arrangement in which it, and other firms, pay the online brokerage firm for access to orders.
The situation facing the hedge funds is akin to a classic short squeeze: The amateur investors are pushing up the price of a stock the big players have bet against. And the pressure to avoid losses could force the shorts to buy, further driving up the price and making the casual traders a mint.
Even after Thursday’s fall tested their nerves, users in the online forums that launched GameStop’s improbable rise — like the Wall Street Bets forum on Reddit — encouraged one another to stay strong and hold their positions.
That’s the plan for Shawn Daumer, 19, a real estate agent in Valparaiso, Ind., who put about $40,000 into shares of GameStop on Jan. 19. By the end of the day on Wednesday, he was more than $420,000 in the black.
Thursday, however, was a different story: On paper, he lost nearly $200,000.
“I’m still up 500 percent,” Mr. Daumer said. “I’m OK.”
And he had no intention of selling GameStop, which had soared to as high as $483 on Thursday, before tumbling to settle at $193.60. The price, he said, would rise again — if all goes well.
“We’re going to $1,000,” he said.
Emily Flitter and Tara Siegel Bernard contributed reporting.