GameStop short sellers have already lost $1 billion from Monday's monster rally

The jaw-dropping rally in GameStop on Monday has already caused losses of $1 billion for short sellers, according to data from S3 Partners.

Just one hour into Monday's trading, with GameStop soaring as high as 110%, short-selling hedge funds have suffered a mark-to-market loss of $1.02 billion in the brick-and-mortar video game retailer, data firm S3 Partners said.

"Expect short covering in this stock as it already had a 100/100 squeeze score prior to today's trading," said Ihor Dusaniwsky, S3 managing director of predictive analytics. 

The sudden advance in the stock was seemingly triggered by "Roaring Kitty," who once encouraged an army of day traders to pile the gaming stock in 2021, an episode that made Wall Street history. The internet persona, whose  legal name is Keith Gill, posted a picture on X of a video gamer leaning forward on their chair as if to indicate he's taking the game seriously, making his first post on the platform since 2021.

The "meme stock" frenzy involved individual investors taking aim at short sellers and hedge funds who were pessimistic about the outlook for GameStop and other companies, forcing them to cover their short positions and drive up the price of the target stocks. 

Currently, the short position in GameStop shares amounts to more than 24% of all its shares that are freely available to trade, also known as the float, according to FactSet.

Including Monday's losses, short sellers in GameStop have lost $1.43 billion in May alone, according to S3.

"Squeeze related buy-to-covers will be helping to push GME's stock price higher - but also expect new short sellers to jump into this trade as GME stock prices around or above the $30 level will be attractive entry points for new short selling," Dusaniwsky said.

Short selling is a strategy in which investors borrow shares of a stock at a certain price in expectations that the market value will fall below that level when it's time to pay for the borrowed shares.

GameStop was not the only meme stock that were on the rise Monday. AMC jumped 22%, while Reddit traded 17% higher.

"Short sellers may be in for a bumpy and bloody ride in these stocks," Dusaniwsky said.

— CNBC's Scott Schnipper contributed reporting.