S&P 500   4,691.09 (+0.09%)
DOW   35,666.37 (-0.15%)
QQQ   397.96 (+0.03%)
AAPL   174.32 (+1.83%)
MSFT   331.55 (-1.01%)
FB   331.49 (+2.69%)
GOOGL   2,945.85 (+0.02%)
AMZN   3,518.61 (-0.13%)
TSLA   1,055.25 (+0.33%)
NVDA   317.73 (-2.02%)
BABA   126.73 (+0.95%)
NIO   34.82 (+5.13%)
CGC   11.11 (+4.42%)
AMD   144.61 (-0.17%)
GE   98.78 (+1.26%)
MU   85.54 (-0.34%)
T   23.10 (+0.09%)
F   19.91 (-0.25%)
DIS   153.28 (+1.64%)
PFE   51.38 (-0.66%)
AMC   33.21 (+6.99%)
ACB   6.68 (+4.70%)
BA   212.24 (+1.63%)
S&P 500   4,691.09 (+0.09%)
DOW   35,666.37 (-0.15%)
QQQ   397.96 (+0.03%)
AAPL   174.32 (+1.83%)
MSFT   331.55 (-1.01%)
FB   331.49 (+2.69%)
GOOGL   2,945.85 (+0.02%)
AMZN   3,518.61 (-0.13%)
TSLA   1,055.25 (+0.33%)
NVDA   317.73 (-2.02%)
BABA   126.73 (+0.95%)
NIO   34.82 (+5.13%)
CGC   11.11 (+4.42%)
AMD   144.61 (-0.17%)
GE   98.78 (+1.26%)
MU   85.54 (-0.34%)
T   23.10 (+0.09%)
F   19.91 (-0.25%)
DIS   153.28 (+1.64%)
PFE   51.38 (-0.66%)
AMC   33.21 (+6.99%)
ACB   6.68 (+4.70%)
BA   212.24 (+1.63%)
S&P 500   4,691.09 (+0.09%)
DOW   35,666.37 (-0.15%)
QQQ   397.96 (+0.03%)
AAPL   174.32 (+1.83%)
MSFT   331.55 (-1.01%)
FB   331.49 (+2.69%)
GOOGL   2,945.85 (+0.02%)
AMZN   3,518.61 (-0.13%)
TSLA   1,055.25 (+0.33%)
NVDA   317.73 (-2.02%)
BABA   126.73 (+0.95%)
NIO   34.82 (+5.13%)
CGC   11.11 (+4.42%)
AMD   144.61 (-0.17%)
GE   98.78 (+1.26%)
MU   85.54 (-0.34%)
T   23.10 (+0.09%)
F   19.91 (-0.25%)
DIS   153.28 (+1.64%)
PFE   51.38 (-0.66%)
AMC   33.21 (+6.99%)
ACB   6.68 (+4.70%)
BA   212.24 (+1.63%)
S&P 500   4,691.09 (+0.09%)
DOW   35,666.37 (-0.15%)
QQQ   397.96 (+0.03%)
AAPL   174.32 (+1.83%)
MSFT   331.55 (-1.01%)
FB   331.49 (+2.69%)
GOOGL   2,945.85 (+0.02%)
AMZN   3,518.61 (-0.13%)
TSLA   1,055.25 (+0.33%)
NVDA   317.73 (-2.02%)
BABA   126.73 (+0.95%)
NIO   34.82 (+5.13%)
CGC   11.11 (+4.42%)
AMD   144.61 (-0.17%)
GE   98.78 (+1.26%)
MU   85.54 (-0.34%)
T   23.10 (+0.09%)
F   19.91 (-0.25%)
DIS   153.28 (+1.64%)
PFE   51.38 (-0.66%)
AMC   33.21 (+6.99%)
ACB   6.68 (+4.70%)
BA   212.24 (+1.63%)

Largest Short Interest Positions on 11/15/2021

Shares that are sold "short" are borrowed then sold with the hopes that the share price will drop before the shares that were borrowed have to be repurchased and returned. A large amount of short interest indicates that some investors believe a stock's price will decline in the near future. "Short" shares can also serve as a hedge for investors that have purchased a large number of shares of a company thinking that the share price will rise over time. Short selling explanation.

View publication schedule for short interest reports

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CompanyShares Sold Short (11/15/2021)Dollar Volume
Sold Short
Shares Sold Short (10/31/2021)Change from Previous ReportDays to Cover% of Float
Shorted
% of Total
Shares Shorted
Indicator(s)
AMD
Advanced Micro Devices
75,490,000 shs $11.06 billion 70,190,000 shs+5,300,000 shs
+7.6%
1.56.3%6.3%
SPGI
S&P Global
19,020,000 shs $8.74 billion 18,150,000 shs+870,000 shs
+4.8%
16.17.9%7.9%
CHTR
Charter Communications
8,170,000 shs $5.66 billion 7,790,000 shs+380,000 shs
+4.9%
96.5%4.6%News Coverage
CP
Canadian Pacific Railway
70,590,000 shs $5.43 billion 66,260,000 shs+4,330,000 shs
+6.5%
13.810.6%10.6%
W
Wayfair
16,670,000 shs $4.23 billion 17,440,000 shs-770,000 shs
-4.4%
1323.0%15.9%Insider Selling
PANW
Palo Alto Networks
6,680,000 shs $3.46 billion 6,590,000 shs+90,000 shs
+1.4%
5.16.9%6.8%Insider Selling
DASH
DoorDash
14,040,000 shs $3.41 billion 11,750,000 shs+2,290,000 shs
+19.5%
4.67.5%4.1%Insider Selling
TDOC
Teladoc Health
21,030,000 shs $2.84 billion 20,770,000 shs+260,000 shs
+1.3%
7.514.2%13.1%Analyst Downgrade
Analyst Revision
ETSY
Etsy
10,120,000 shs $2.76 billion 10,490,000 shs-370,000 shs
-3.5%
4.88.0%8.0%
ZS
Zscaler
7,570,000 shs $2.62 billion 7,170,000 shs+400,000 shs
+5.6%
4.29.5%5.4%Analyst Downgrade
Insider Selling
Analyst Revision
EBAY
eBay
34,980,000 shs $2.60 billion 37,940,000 shs-2,960,000 shs
-7.8%
5.75.8%5.4%
MDB
MongoDB
4,600,000 shs $2.58 billion 4,480,000 shs+120,000 shs
+2.7%
5.47.4%7.0%Earnings Report
Analyst Report
News Coverage
CAR
Avis Budget Group
8,660,000 shs $2.37 billion 13,520,000 shs-4,860,000 shs
-36.0%
3.715.6%15.3%
PLUG
Plug Power
48,550,000 shs $2.03 billion 54,340,000 shs-5,790,000 shs
-10.7%
2.29.6%8.4%
MTCH
Match Group
13,500,000 shs $2.00 billion 13,900,000 shs-400,000 shs
-2.9%
3.25.0%4.8%News Coverage
U
Unity Software
10,050,000 shs $1.99 billion 10,840,000 shs-790,000 shs
-7.3%
2.76.2%3.5%Insider Selling
RNG
RingCentral
7,290,000 shs $1.93 billion 8,000,000 shs-710,000 shs
-8.9%
5.89.1%7.9%
PLTR
Palantir Technologies
81,700,000 shs $1.91 billion 62,800,000 shs+18,900,000 shs
+30.1%
1.85.1%4.2%
RUN
Sunrun
32,730,000 shs $1.90 billion 36,050,000 shs-3,320,000 shs
-9.2%
6.216.4%15.8%
LCID
Lucid Group
41,870,000 shs $1.88 billion 54,220,000 shs-12,350,000 shs
-22.8%
0.68.1%2.5%Gap Down
RBLX
Roblox
16,800,000 shs $1.82 billion 20,840,000 shs-4,040,000 shs
-19.4%
1.26.6%3.3%Analyst Report
APO
Apollo Global Management
22,570,000 shs $1.72 billion 22,090,000 shs+480,000 shs
+2.2%
9.110.2%9.2%
BYND
Beyond Meat
20,320,000 shs $1.70 billion 17,120,000 shs+3,200,000 shs
+18.7%
6.736.2%32.1%
LYV
Live Nation Entertainment
14,430,000 shs $1.67 billion 12,730,000 shs+1,700,000 shs
+13.4%
79.5%6.4%
VIAC
ViacomCBS
46,100,000 shs $1.65 billion 45,500,000 shs+600,000 shs
+1.3%
4.78.0%7.1%
RH
RH
2,350,000 shs $1.53 billion 2,410,000 shs-60,000 shs
-2.5%
5.312.5%11.0%Analyst Report
WHR
Whirlpool
6,330,000 shs $1.48 billion 6,480,000 shs-150,000 shs
-2.3%
10.110.7%10.4%
AAL
American Airlines Group
72,510,000 shs $1.47 billion 95,590,000 shs-23,080,000 shs
-24.1%
2.511.3%11.2%News Coverage
CCL
Carnival Co. &
65,970,000 shs $1.47 billion 67,050,000 shs-1,080,000 shs
-1.6%
2.17.8%6.8%
IRM
Iron Mountain
29,950,000 shs $1.47 billion 28,770,000 shs+1,180,000 shs
+4.1%
19.710.5%10.3%
COUP
Coupa Software
6,390,000 shs $1.46 billion 7,680,000 shs-1,290,000 shs
-16.8%
5.48.7%8.6%Earnings Report
Analyst Report
News Coverage
DKNG
DraftKings
36,790,000 shs $1.45 billion 33,950,000 shs+2,840,000 shs
+8.4%
2.611.3%9.1%Analyst Report
Z
Zillow Group
22,620,000 shs $1.44 billion 21,460,000 shs+1,160,000 shs
+5.4%
3.313.3%8.9%
LUMN
Lumen Technologies
100,640,000 shs $1.42 billion 95,650,000 shs+4,990,000 shs
+5.2%
9.29.9%9.8%
GME
GameStop
6,780,000 shs $1.42 billion 7,060,000 shs-280,000 shs
-4.0%
2.510.8%8.9%
LYFT
Lyft
27,400,000 shs $1.42 billion 27,720,000 shs-320,000 shs
-1.2%
5.59.5%8.0%
AFRM
Affirm
9,340,000 shs $1.38 billion 9,600,000 shs-260,000 shs
-2.7%
0.65.1%3.3%
ESTC
Elastic
7,490,000 shs $1.37 billion 8,010,000 shs-520,000 shs
-6.5%
8.810.1%8.2%Earnings Report
Analyst Upgrade
Gap Up
CPNG
Coupang
47,170,000 shs $1.33 billion 41,370,000 shs+5,800,000 shs
+14.0%
5.46.7%2.7%
CHWY
Chewy
17,580,000 shs $1.31 billion 19,930,000 shs-2,350,000 shs
-11.8%
5.219.9%4.2%Upcoming Earnings
Analyst Downgrade
Analyst Revision
STX
Seagate Technology
12,260,000 shs $1.30 billion 11,840,000 shs+420,000 shs
+3.6%
55.5%5.5%
QS
QuantumScape
31,880,000 shs $1.29 billion 35,950,000 shs-4,070,000 shs
-11.3%
2.715.2%7.5%
CLX
The Clorox
7,300,000 shs $1.24 billion 7,180,000 shs+120,000 shs
+1.7%
66.0%5.9%
RCL
Royal Caribbean Group
14,370,000 shs $1.23 billion 14,030,000 shs+340,000 shs
+2.4%
4.46.6%5.6%Gap Up
M
Macy's
39,380,000 shs $1.22 billion 47,720,000 shs-8,340,000 shs
-17.5%
2.313.3%12.7%Analyst Revision
WSM
Williams-Sonoma
5,690,000 shs $1.21 billion 6,030,000 shs-340,000 shs
-5.6%
5.67.7%7.7%
IIVI
II-VI
18,210,000 shs $1.19 billion 17,880,000 shs+330,000 shs
+1.9%
16.917.4%17.2%
DKS
DICK'S Sporting Goods
8,710,000 shs $1.17 billion 9,960,000 shs-1,250,000 shs
-12.6%
3.514.0%10.1%
K
Kellogg
18,180,000 shs $1.16 billion 18,230,000 shs-50,000 shs
-0.3%
9.25.4%5.3%
VOYA
Voya Financial
17,100,000 shs $1.15 billion 17,660,000 shs-560,000 shs
-3.2%
12.715.6%15.4%
SIRI
Sirius XM
172,250,000 shs $1.14 billion 181,130,000 shs-8,880,000 shs
-4.9%
10.921.0%4.3%
SJM
The J. M. Smucker
8,690,000 shs $1.12 billion 8,570,000 shs+120,000 shs
+1.4%
10.78.3%8.0%
X
United States Steel
43,110,000 shs $1.11 billion 48,370,000 shs-5,260,000 shs
-10.9%
216.1%16.0%
OPEN
Opendoor Technologies
48,500,000 shs $1.09 billion 44,400,000 shs+4,100,000 shs
+9.2%
3.613.5%7.9%
OMC
Omnicom Group
15,470,000 shs $1.07 billion 14,160,000 shs+1,310,000 shs
+9.3%
9.87.4%7.3%Dividend Announcement
SOFI
SoFi Technologies
46,560,000 shs $1.07 billion 46,240,000 shs+320,000 shs
+0.7%
1.79.2%5.8%
CLF
Cleveland-Cliffs
49,050,000 shs $1.07 billion 51,270,000 shs-2,220,000 shs
-4.3%
2.310.8%9.8%
HST
Host Hotels & Resorts
58,610,000 shs $1.05 billion 60,950,000 shs-2,340,000 shs
-3.8%
8.48.3%8.2%Analyst Revision
AKAM
Akamai Technologies
9,520,000 shs $1.03 billion 9,730,000 shs-210,000 shs
-2.2%
7.36.0%5.9%
HRC
Hill-Rom
6,570,000 shs $1.02 billion 5,340,000 shs+1,230,000 shs
+23.0%
5.610.0%9.9%
PCG
PG&E
81,360,000 shs $1.01 billion 83,290,000 shs-1,930,000 shs
-2.3%
55.7%3.3%
CHRW
C.H. Robinson Worldwide
10,340,000 shs $988.71 million 10,110,000 shs+230,000 shs
+2.3%
9.78.0%8.0%
FSR
Fisker
44,250,000 shs $955.36 million 46,700,000 shs-2,450,000 shs
-5.3%
4.827.7%14.9%
LOGI
Logitech International
11,690,000 shs $935.67 million 11,820,000 shs-130,000 shs
-1.1%
13.77.2%7.0%
DISH
DISH Network
25,420,000 shs $919.95 million 26,870,000 shs-1,450,000 shs
-5.4%
11.910.2%4.8%
SNA
Snap-on
4,100,000 shs $908.89 million 3,980,000 shs+120,000 shs
+3.0%
10.47.8%7.6%
DISCA
Discovery
31,860,000 shs $892.72 million 30,690,000 shs+1,170,000 shs
+3.8%
5.519.4%6.3%
TREX
Trex
6,790,000 shs $875.10 million 6,450,000 shs+340,000 shs
+5.3%
10.35.9%5.9%
OLLI
Ollie's Bargain Outlet
12,660,000 shs $857.08 million 11,970,000 shs+690,000 shs
+5.8%
10.822.5%19.5%Earnings Report
Analyst Report
Analyst Revision
MIDD
The Middleby
4,550,000 shs $855.86 million 4,680,000 shs-130,000 shs
-2.8%
13.98.6%8.2%
AAP
Advance Auto Parts
3,480,000 shs $841.85 million 3,500,000 shs-20,000 shs
-0.6%
5.75.6%5.6%
WIX
Wix.com
4,210,000 shs $834.30 million 4,130,000 shs+80,000 shs
+1.9%
5.97.7%7.5%
BMRN
BioMarin Pharmaceutical
10,130,000 shs $831.37 million 10,730,000 shs-600,000 shs
-5.6%
75.6%5.5%
ATUS
Altice USA
47,920,000 shs $829.02 million 44,430,000 shs+3,490,000 shs
+7.9%
6.623.1%10.5%Analyst Report
KSS
Kohl's
14,170,000 shs $826.96 million 17,490,000 shs-3,320,000 shs
-19.0%
3.99.5%10.2%
MARA
Marathon Digital
14,480,000 shs $802.19 million 15,310,000 shs-830,000 shs
-5.4%
1.215.6%14.1%Gap Down
LMND
Lemonade
12,650,000 shs $786.07 million 13,720,000 shs-1,070,000 shs
-7.8%
8.633.3%20.5%
UPST
Upstart
3,350,000 shs $783.16 million 3,280,000 shs+70,000 shs
+2.1%
0.75.5%4.1%
TAP
Molson Coors Beverage
15,070,000 shs $741.59 million 15,370,000 shs-300,000 shs
-2.0%
9.67.8%6.9%
ASAN
Asana
5,430,000 shs $740.65 million 5,380,000 shs+50,000 shs
+0.9%
1.98.1%3.0%Earnings Report
Analyst Report
Gap Up
CHKP
Check Point Software Technologies
6,310,000 shs $738.14 million 5,940,000 shs+370,000 shs
+6.2%
75.9%4.6%
CHK
Chesapeake Energy
11,660,000 shs $727.70 million 11,030,000 shs+630,000 shs
+5.7%
810.0%10.0%Buyback Announcement
Positive News
PPD
PPD
15,380,000 shs $726.55 million 16,860,000 shs-1,480,000 shs
-8.8%
11.413.1%4.4%News Coverage
GPS
The Gap
29,130,000 shs $723.59 million 31,670,000 shs-2,540,000 shs
-8.0%
3.613.4%7.8%
CACC
Credit Acceptance
1,070,000 shs $719.76 million 1,250,000 shs-180,000 shs
-14.4%
7.610.6%7.4%Insider Selling
News Coverage
NLSN
Nielsen
32,910,000 shs $712.50 million 33,040,000 shs-130,000 shs
-0.4%
8.89.2%9.2%
RPD
Rapid7
5,340,000 shs $707.55 million 5,320,000 shs+20,000 shs
+0.4%
12.99.7%9.5%
NKLA
Nikola
51,000,000 shs $700.23 million 58,510,000 shs-7,510,000 shs
-12.8%
4.625.7%12.6%
HOG
Harley-Davidson
18,060,000 shs $698.38 million 16,920,000 shs+1,140,000 shs
+6.7%
11.911.8%11.7%
CROX
Crocs
3,910,000 shs $694.03 million 4,350,000 shs-440,000 shs
-10.1%
2.56.9%6.6%
SLAB
Silicon Laboratories
3,340,000 shs $691.18 million 3,840,000 shs-500,000 shs
-13.0%
7.88.5%8.3%Insider Selling
COHR
Coherent
2,620,000 shs $677.14 million 2,610,000 shs+10,000 shs
+0.4%
19.710.9%10.6%Analyst Downgrade
OSH
Oak Street Health
16,990,000 shs $677.05 million 16,410,000 shs+580,000 shs
+3.5%
9.817.1%7.1%
VNO
Vornado Realty Trust
14,520,000 shs $676.63 million 14,800,000 shs-280,000 shs
-1.9%
11.18.3%7.6%
AN
AutoNation
5,220,000 shs $673.48 million 5,280,000 shs-60,000 shs
-1.1%
4.913.3%8.0%
SPCE
Virgin Galactic
35,390,000 shs $672.41 million 37,100,000 shs-1,710,000 shs
-4.6%
2.617.0%13.7%
GDS
GDS
11,390,000 shs $671.10 million 11,130,000 shs+260,000 shs
+2.3%
96.7%6.1%
CPB
Campbell Soup
15,910,000 shs $663.92 million 15,080,000 shs+830,000 shs
+5.5%
6.17.9%5.3%Earnings Report
Dividend Announcement
News Coverage
BL
BlackLine
5,190,000 shs $660.95 million 5,400,000 shs-210,000 shs
-3.9%
13.510.0%8.8%
CLVT
Clarivate
27,620,000 shs $660.39 million 27,500,000 shs+120,000 shs
+0.4%
76.9%4.3%
Short Selling - Explanation For Shorting Stocks

Many people invest in stocks with firm convictions that prices will move up because of improving market conditions and the productivity of companies. However, that does not mean that all stock prices are continually rising.

Stocks do suffer from poor business plans, increased competition, and lousy management, among other reasons. It is during these downturns that some traders will employ a strategy with the aim of taking advantage of an upcoming decrease in a stock’s price. This trading strategy is called short selling.

What is Short Selling?

Short selling refers to the sale of security such as a stock, in anticipation of prices falling. The trading strategy is motivated by the belief that the prices of a security will drop, providing an opportunity for the stocks to be repurchased later and for the difference in price to be taken as profit.

Short sellers borrow shares of stocks they don’t own and try to sell them at current price with the aim of rebuying them once the price drops significantly. The aim of this strategy is to benefit from the difference between the price of short selling and the cost of rebuying the stocks.

Unlike investors who hold stocks for their value and the income they produce, traders capitalize on an anticipated decline in price by trying to sell high and buying low. Short selling is most of the time limited to margin accounts because of the unlimited losses that can come into being if stock prices start rising rather than dropping.

Short selling is one of the most misunderstood strategies in investing as short sellers are generally reviled for trying to benefit from a bad situation. After all, a short seller could end up profiting from the woes of a company even while company stockholders’ and employees’ livelihoods are being destroyed.

However, that is not a complete and fair view of the job of a short seller. Optimism in the market can drive prices to lofty levels that are unsustainable and that don’t reflect the actual value of a company. The presence of short sellers in the marketplace can help to rebalance stock prices to ensure that companies are fairly valued.

Short selling also provides a form of defense against financial fraud by bringing to light companies that have tried to inflate their performance and valuation. If all stockholders could profit from a stock’s value rising, but no one could profit from the stock’s value falling, there would be very little pressure keeping the stock’s price in line with reality.

How Short Selling Works

Short selling involves three clear-cut steps. For starters, a trader with strong conviction that a stock price is destined to trade lower would borrow shares of that security from a broker. Once a request to borrow the shares is accepted, the trader will sell the shares at the market price.

If the analysis was accurate and the stock price drops from the sale price, the trader will be able to buy the same number of shares back at the new, low market price, then sell them back to the broker at the originally agreed upon value. The trader will profit the difference between the share price at the time of borrowing the shares and the share price at the time of returning the shares.

For example: If Mr. Trader expects the stock of company XYZ, currently priced at $25, to fall in future, he will call a broker and ask the broker to find him 100 shares of the company to borrow for a short sale. As soon as the broker lends the stocks, Mr. Trader sells them all for $25 each. Now Mr. Trader has $2500 but owes his broker 100 shares of XYZ.

If all goes as Mr. Trader hoped, and the share price drops $20, he will be able to cover his short position by buying back the stock. Mr. Trader now spends $2,000 to repurchase the shares and return them to the broker he borrowed them from.

Once the transaction is complete, the profit on the trade will be $500.

Why Do People Engage In Short Selling?

Traders engage in short selling when they speculate that a stock price will fall as a response to a changing market or a company’s fundamentals.  Speculation is the main reason behind short selling, especially on companies that investors feel are overvalued. Solid research, good intuition, and excellent timing are all required if one is to profit from speculation.

However, some traders also engage in short selling as a way of hedging a long position in the same or similar stocks. Some traders also participate in a short sale as a way of seeking favorable tax treatment.

Understanding Short Interest

Short sellers track two key metrics when deploying short selling to generate returns from the stock market: short interest and short interest ratio. Traders can determine the percentage of company’s shares that are being sold short, by first checking ‘short interest.’

Short interest refers to the total number of shares sold as a percentage of a company’s total outstanding shares. If a stock has a short interest of 10%, then it means that for every 10 outstanding shares, one is held as a short. Stocks with high short interest are usually at risk of “short squeeze,” a phenomenon that is most of the time associated with unexpected upward price spikes.

Hedge Funds are the most active when it comes to short selling stocks. Such funds try to hedge the market by short selling stocks they believe are overvalued. Sophisticated investors are also involved in short selling as they try to hedge market risk. Short selling is an ideal trading strategy for traders who think short term as it requires people to keep a close eye on trading positions.

Never short a stock that is likely to draw in a takeover offer. Takeover offers often send prices soaring, which leads to spiraling losses in short positions. It is also important to be cautious when shorting a stock just because it feels overvalued. A stock that feels overvalued can continue rising.

Short selling provides a way for traders to benefit when a company’s fundamentals change, leading to a slide in share price.  Taking into consideration the forces of demand and supply, for a market to remain balanced, there is always a need for people to be on both sides of the trade. It is for this reason that short sellers exist alongside buyers or long traders.

Is short selling risky?

While a necessary part of the market, short selling also has its fair share of risks. For starters, when a large number of traders enter short positions, the collective actions could result in a dramatic impact that would drive prices to levels never seen before.

It is for this reason that regulators at times ban short selling in a bid to protect stocks of companies under pressure.  During the financial crisis, investors were barred from short-selling stocks of banks and other financial institutions.

Short selling can also lead to unlimited losses in the event that stock prices rise instead of fall as expected.  An unexpected spike in prices will force short sellers to cover their positions at once. All traders who have shorted the stock are scrambling to buy the stock back quickly before the price goes even higher. With such high demand, those who hold the stock assume full control and the stock price rises far beyond its true value. Short sellers who fail to cover their positions fast enough can end up with huge losses.

Short selling is riskier than traditional stock buying, in part because it exposes traders to theoretically infinite risks. When shorting a stock, the maximum gain is capped at 100% of the original investment - the best case scenario for a short seller is that the stock goes all the way to zero and the short seller pays nothing to pay back the stocks he owes. On the other hand, the potential losses are unlimited. The worst case scenario is that the stock price suddenly climbs to a million or so dollars before the short seller is able to buy the necessary shares back, and the short seller is deep in the hole forever. Timing is thus important when it comes to short selling, as placing a trade at the wrong time could be a recipe for disaster.

Unlike stock buying, short selling also does come with a number of costs that can eat into one’s returns significantly. For starters, short sellers are normally charged stock borrowing costs that, in worst case scenarios, can exceed the profit from the short trade, especially when dealing with stocks that are difficult to borrow.

The fact that short selling is done in margin accounts also means traders must pay for margin interest on positions taken. Short sellers also must turn over any dividends and distributions paid on borrowed stock. If the trader isn’t careful, the costs can bite out trading gains.

How Day Traders Go About Short Selling

To be able to engage in short selling one first needs to open and finance a margin account. The standard margin requirement is 150%, which means one must set aside 50% of the value of the stock at the time of borrowing in that account. For example, if one wishes to short sell 100 shares of a company going for $10 a share, one will need about $500 in a margin account.

Stock Identification

Short sellers use screening tools to identify potential short candidates whose price might have run ahead of fundamentals and are destined to trade lower.  Stocks with prices hitting lower lows at higher volume, signify that sellers are running the show, which implies possible further movements on the downside.

Stocks that have rebounded considerably from a downtrend also provide short selling opportunities especially if they are trading in overbought territory.  While in overbought areas, stocks tend to lose upward steam providing a chance to profit on the price plummeting back to the lows.

Protect the Order

Once a short position is triggered in a stock, implementing a kind of protection on the order is ideal. In this case, a buy stop order or a trailing buy stop order can come into play as a way helping manage a potential loss, especially during a short squeeze. A short squeeze happens when there is a lack of supply to cover the excess of demand for a particular stock. Short sellers are then forced to cover their positions, resulting in an uptick in buying volume and therefore a higher price for the stock.

A buy stop order is used to trigger a market order to buy back shares once the price rallies back to the stock price entered.  A trailing buy stop order, on the other hand, adjusts the trigger price for taking profits as the stock price moves lower.

Caution

Caution is of utmost importance especially for people who are short selling while using leverage. While leverage is not a bad thing, one still faces the risk of losing more than what is in the account on a stock price going up, rather than down as expected. A stock going up by more than 100% means one can lose more than what is in the account.

While short selling, it is also important to keep track of the catalysts that are pushing and expected to continue driving prices lower. Earnings report are some of the best catalysts for this strategy as they tend to push stock prices in case of a company failing to meet guidance or analysts’ estimates.

Understand the Risks and Costs

Prior to entering a short position and setting up a price at which to buy back the shares, it is important for a trader to take into consideration the costs that come into being in short selling. In case a stock does pay a dividend, a short seller is usually responsible for paying for it back to the stockholder. In addition to margin costs, these costs can significantly reduce one’s potential return and must be taken into account when choosing the price at which to sell and the price at which to buy.

It is also important to look at the total amount of shares in a company, which have already been sold short. Positive news goes a long way in triggering huge price spikes in stocks that have high short interest, as traders usually hurry to buy shares in a bid to cover their short positions.

Bottom Line

Short selling is an important trading strategy that allows traders to profit when the market falls. However, the strategy is suited for traders who are familiar with the risks and regulations involved.

Taking into consideration the risks involved, this strategy is ideal for disciplined traders who know how to cut their losses and cover the losses that they do incur.  The approach is also ideal for people who are willing and ready to handle unlimited risks. Short selling also requires constant monitoring as holding an unprofitable position for long may not be a viable strategy.


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