Melvin Capital’s publications return more than 20% in February, sources say

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

Melvin Capital, which previously had a big bet against the video game retailer, saw a 21.7% return in February, according to sources. The fund shrank 53% in January during the dramatic pressure that caused GameStop and other stocks to skyrocket.

The firm said in late January it was closing GameStop shorts as stocks rose. Melvin’s founder, Gabe Plotkin, was one of the people brought to testify before Congress about volatile market movements, along with Citadel’s Ken Griffin and retailer Keith Gill.

Melvin received new investments in his fund during the turmoil, with Citadel and Steve Cohen’s Point72 injecting $ 3 billion.

Plotkin’s hedge fund, like many others, will go short against a company. Short-term selling is a strategy in which investors borrow shares of a stock at a certain price in the hope that the market value will drop from that level when it is time to repay the borrowed shares.

The high level of short positions in some stocks, including GameStop, was noticed by marketers on social networking sites like Reddit’s WallStreetBets forum.

An increase in purchases on GameStop and other names led to short cuts, which is the phenomenon that occurs when short sellers buy stocks to cover their positions, forcing even higher prices. The price of GameStop shares went from less than $ 20 to nearly $ 500 at one point before falling sharply.

Plotkin told the House Financial Services Committee last month that short sellers may have to change their strategies after retailers appeared to cause a dramatic increase in some of their main targets.

“I think at Melvin, we’re going to adapt, and I think the whole industry is going to have to adapt,” Plotkin said.

Melvin Capital declined to comment to CNBC.

– Kevin Stankiewicz of CNBC contributed to this story.