GameStop Corp., the most shorted company on the S&P 500 in 2020, saw its stock more than double this week, leaving investors who previously bet on the video game retailer's demise scrambling to liquidate their short positions.

"This is absolutely a short squeeze," said Michael Pachter, a U.S. video game, social media, digital media and electronics analyst with Wedbush Securities. In a short squeeze, a stock's rise prompts short sellers, who had bet on the stock to decline, to rush to cover their positions, putting more upward pressure on the stock.

GameStop's stock price jumped from $17.69 per share at the close Jan. 8 to over $43 on Jan. 14. The stock settled at $39.92 on Jan. 14, up 27.1% on the day. The shares fell back the next day, trading down 11% at midday ET on Jan. 15, though the $35.98 price was still more than double its Jan. 8 close.

Short interest in GameStop in 2020 was based on the bet that the retailer would be unable to survive the coronavirus pandemic and the ongoing move to online retail. Short interest relative to shares outstanding climbed as high as 107.9% by mid-October, according to S&P Global Market Intelligence data. It was 97.7% at the end of December.

But many of those short sellers may have moved away from their positions after the company this week agreed to name Chewy Inc. co-founder Ryan Cohen and two of his colleagues to its board.

The short squeeze that likely followed was Cohen "flexing his muscle as a large shareholder and making moves to strengthen the board and help the company with an e-commerce strategy," Pachter said.

"I think people are generally optimistic that he will succeed, but the move [Jan. 13 and 14] appears to have a lot of optimism built in," he added.

Pachter said that GameStop has only 65 million shares, about 20 million of which are owned by management, insiders and activists, leaving very little float.

Shorts jump to end year

Overall, short sellers of S&P 500 stocks increased their positions as 2020 drew to a close, with average short interest at 3.41%, up from 3.35% in mid-December.

John Stoltzfus, managing director and chief investment strategist with Oppenheimer Asset Management, said investors may have increased their short positions in anticipation of the outcome of the Georgia Senate races, which swung control of the Senate, and potentially on expectations of a rise in inflation.

Investors may have also felt that the S&P 500 may soon plateau after an 18.4% gain for the year on a total-return basis, he said.

"There may have been an anticipation that the market would taper some of its advances," Stoltzfus said.

Short interest in all 11 of the S&P 500's sectors increased from mid-December 2020 to the end of the year. Short interest in consumer discretionary stocks, which has drawn the most short interest of any sector all year, climbed to 5.35% by the end of December, up from 5.17% earlier in the month.

Short interest in healthcare stocks, which saw the second-highest percentage of short interest in 2020, climbed to 5.35% at the end of December, from 5.17% earlier in the month.

"The resurgence of short interest heading into the end of the year suggests that bulls may have gotten out over their skis after November's vaccine breakthroughs,” said Matt Weller, global head of market research at GAIN Capital. "The combination of the post-holiday tidal wave of COVID cases and worrying news about more virulent mutations suggests that US economic growth won’t start to normalize until Q3 or Q4 of this year, later than the Q2 timeframe that more optimistic investors had initially priced in."