GameStop Corp. (GME) has the market absolutely captivated right now – a troubled company whose stock suddenly doubles every day will tend to do that.

The stock is up more than 1,822% intraday since Jan. 4. It was trading at $341 at midday yesterday, but had been as high as $380 in pre-market trading.

This is clearly a short squeeze of historic proportions. These kinds of events can and often do spark fast, violent rallies… but when it emerged that most of the short positions had been closed yesterday afternoon, the stock kept rallying.

That's just one reason regular investors are worried that this whole episode might mean the market's turned against them, that they can't trust what they're seeing – or buying – anymore.

I was able to talk to Shah Gilani yesterday afternoon, in this edited interview, to ask him what he thought the biggest, most important takeaways for folks might be.

Most importantly, Shah says "Don't worry." But he had a lot more light to shed on things…

Here's the Truth About the GameStop Short Squeeze

Greg Madison: Hi, Shah – thanks, as always, for talking with us.

Shah Gilani: My pleasure.

GM: So… we've got to talk GameStop here – completely bizarre situation.

SG: Well, it's not quite as bizarre and unprecedented as you might think. Don't get me wrong: It certainly is unprecedented that the "other side" in this short squeeze happens to be hundreds of thousands, maybe even millions of individual investors, loosely coordinating on Reddit, message boards, and so on. That is new, but the basic mechanics and motivations, the opposing forces behind a short squeeze like this are nothing new.

GM: How so?

SG: Well, the hedge funds are doing what hedge funds do; they see what could be juicy short opportunity in a company that's in some trouble, and they go short. That happens all the time. When I started trading 40 years ago, it would happen constantly. Still does.

On the flip side of the coin, when other traders get wind of a big short going down – and it's not hard to figure out, particularly in GameStop's case where short interest was at 200% of the float – it's easy to line everybody up, start buying, and squeeze the short. It's just that in this case, it's not professional traders but retail investors squeezing the short, and frankly, I think it's great.

GM: A case of "all's fair in love and war?"

SG: Absolutely. You know, setting aside the fact that smaller, individual investors have been empowered here, and become a force to be reckoned with – the tail wagging the dog, as I've said before – the hedge funds should have seen this coming.

It's a principled game, and all the players know how it's played. The pros shorting GameStop know the rules of the game – almost certainly they know better than the average retail investor. If you do the homework and get to short a stock, but the stock goes through the roof because you got played, you should get out. It's unimaginable to me that the institutions shorting this stock didn't think of how high-profile that position would be. That's the bizarre thing, to me – one of them, at least.

GM: And the other?

SG: I mean the "bailout" we've seen, Melvin Capital [Note: As of Wednesday afternoon, Melvin Capital and Citron have reportedly thrown in the towel and closed out their short GME positions.] Melvin was getting absolutely clobbered by the "Reddit crowd" on this; as of this past Friday, it was down something like 30% year to date. It got a $2.75 billion cash infusion from Point72, that's Steve Cohen's outfit, and Ken Griffin's Citadel. Hedge funds bailing out a hedge fund, basically, in exchange for non-controlling shares in Melvin.

Now, the funny thing here is… Citadel is a market maker! Robinhood, which is where a lot of these new investors are based, sends order flow through Citadel, among others. Citadel can read it, and, presumably, it's read a hell of a lot of orders for GameStop stock lately. For it to want to bail out the firm that likely had the biggest short position in GameStop is definitely odd. That's one I'm going to watch.

GM: What kind of knock-on effects or fallout can we expect from this? I mean, bystanders, regular investors – at least the ones who aren't squeezing the GameStop short – have to be watching this thinking, "Yikes!" I mean, Elon Musk has now sort of entered the fray here, tweeting about the Wall Street Bets thread where this all started.

SG: That's interesting, too. I think Elon Musk is cheering on the short-covering and the big rally because he himself, Tesla, was shorted constantly for years and years. Then Musk would hit the market with great news and those shorts had to cover, driving  Tesla (TSLA) shares higher and higher. In other words, Musk has been the beneficiary of short-covering himself. There is, by the way, around 8% short interest – tens of millions of shares – in Tesla's public float right now. If Tesla turns in better than expected numbers, those shorts will have to cover and that stock could go up handsomely.

GM: Back to possible fallout from this. What would you say to regular investors who are thinking, "What is there to stop this from happening to my stocks? How do I trust the market after this?"

SG: To be perfectly honest, I'm not predicting much in the way of fallout at all. I mean, most regular investors don't have these kinds of gigantic short positions that are going to be attracting the kind of organized, determined attention that the online crowd has brought to bear here.

Like I said, hedge funds always have and always will be slugging it out like this, and now the market's host to more and more retail investors who, apparently, have found it in their best interest to organize and fight. Reddit and some of these other forums will be a force in the market for a long time to come, but that's the free market for you. I really don't think it's anything regular investors have to worry about. If anything, this could open up some interesting trading opportunities for people. My message for any individual who's worried about this is: Don't worry; this is a good thing.

GM: Shah, thanks for talking us through this – it's certainly a fascinating story. Promise you'll come back if anything changes?

SG: Thanks for having me. Absolutely I will.