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Nintendo stock increase trips up hedge fund's $400 million bet

Melvin Capital's months-long short position in Switch maker suffers setback, may still prove profitable

Hedge funds betting against Nintendo stock prices ahead of its financial earnings report earlier this week faced an unfortunate (for them) shift in the market. In particular, Melvin Capital Management's short bet of $400 million may be hurting a bit more than before as Nintendo reported higher-than-estimated earnings and saw rising stock prices.

Per Bloomberg, short-sellers have apparently had their eyes on Nintendo since May, though Melvin Capital's was by far the largest bet and covered about a third of all Nintendo shorts. Nintendo's stock declined 11% during E3, during which time manager Gabriel Plotkin continued to increase his bet and short-sell stock.

Plotkin increased his existing short bet in advance of the earnings report. A regulatory filing indicates that on Tuesday, his fund was $40 million short in Nintendo stock. That's 1.2 million shares, or 0.8% of outstanding Nintendo stock. This bet represented the largest against Nintendo since at least 2013.

With share prices rising up to 7% after Nintendo's financial results, Bloomberg estimates that the last two days could account for a loss of up to $27 million. That said, Plotkin is likely still making money off the bet since it was initially made back in May, when the stock price was higher, and he may have been short selling since then. Plotkin's fund also deals with around $7 billion, making even a theoretically greater loss from this bet only a glancing blow.

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