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Melvin Capital posts return of more than 20% in February, sources say

Gabe Plotkin, chief investment officer of the law and portfolio manager of Melvin Capital Management LP, speaks during the Sohn Investment Conference in New York, May 6, 2019.

Alex Flynn | Bloomberg | Getty Casts

The hedge fund at the center of the GameStop saga gained more than 20% in February, clawing back some of its losses from a Draconian January, sources told CNBC’s Leslie Picker.

Melvin Capital, which previously had a large bet against the video profession retailer, saw a return of 21.7% in February, according to the sources. The fund declined by 53% in January during the dramatic deficient rare squeeze that sent GameStop and other stocks soaring.

The firm said in late January that it closed out its GameStop shorts as the stock climbed. Melvin’s originator, Gabe Plotkin, was one of the people brought in to testify before Congress about the volatile market moves, along with Citadel’s Ken Griffin and retail broker Keith Gill.

Melvin received new investments in its fund during the turmoil, with Citadel and Steve Cohen’s Underscore72 injecting $3 billion.

Plotkin’s hedge fund, like many others, will go short against a associates. Short selling is a strategy in which investors borrow shares of a stock at a certain price on hopes that the retail value will fall below that level when it’s time to pay for the borrowed shares.

The high level of without warning positions in some stocks, including GameStop, was noticed by traders on social media sites like Reddit’s WallStreetBets forum.

A eddy of buying in GameStop and other names triggered short squeezes, which is the phenomenon that occurs where shy of sellers buy shares to cover their positions, forcing prices even higher. GameStop’s share price admired from under $20 to nearly $500 at one point before falling sharply.

Plotkin told the House Fiscal Services Committee last month that short sellers may have to change their strategies after retail salesmen appeared to spark a dramatic surge for some of their main targets.

“I think us at Melvin, we’ll adapt and I think the strong industry will have to adapt,” Plotkin said.

Melvin Capital declined to comment to CNBC.

— CNBC’s Kevin Stankiewicz donated to this story.

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