Professional short-sellers have changed their ways this year. They have limited their exposure to risk after taking heavy losses earlier in 2021 as traders using Reddit’s WallStreetBets channel and other social media bid up prices of stocks the pros had bet against.
But there are still stocks with heavy short interest that have been bid up recently. Below is a new list using the same criteria we used to pull this list of heavily shorted stocks during the Reddit/Robinhood mania in late January.
First, a quick review of terms:
- Short-selling is when an investor borrows shares and immediately sells them, hoping to buy them back later at a lower price, return them to the lender and pocket the difference.
- Covering is when a person with a short position buys the shares to return them to the lender, to profit if the shares have gone down in price since they were shorted, or to limit losses if they went up after being shorted.
- A short squeeze is when a mass of investors looking to cover short positions start buying at the same time. The buying pushes the share price higher, making short investors accelerate their attempts to cover, which sends the shares spiraling higher in a frenzy. This is what happened earlier this year when traders as a group decided to take on professional sellers by buying a lot of shares of heavily shorted stocks, including, most famously, GameStop Corp. GME, -1.67% and AMC Entertainment Holdings Inc. AMC, +15.38%.
Biggest short squeezes
Late in January, we listed heavily shorted stocks that had shot up the most that month. We began with the components of the Russell 3000 Index RUA, +0.12%, then identified the 65 stocks with at least 25% short interest. Among those, GameStop had the biggest year-to-date gain through Jan. 27 — an astounding 1,745%.
So now we have used the same method. According to FactSet’s most current data, there were only 20 stocks among the Russell 3000 whose shares available for trading were at least 25% sold short as of June 11. Here they are, sorted by how much the shares had appreciated for four weeks (from May 14) through June 11:
The biggest short squeeze in the Russell 3000 appears to be Virgin Galactic Holdings Inc. SPCE, +3.96%, which more than doubled in four weeks and was 27.82% sold short on June 11. The company’s shares have soared since the successful test of its manned shuttle on May 23, which one Wall Street analyst called a “major milestone.” The company expects to begin testing for commercial passenger flights next year.
Workhorse Group Inc. WKHS, -3.09% is the most heavily shorted stock on the list, with 40.32% short interest, and its shares have nearly doubled in four weeks. The electric-vehicle maker produced 38 of its C-Series trucks during the first quarter and delivered six to customers. Cowen analyst Jeffrey Osborne downgraded Workhorse to a hold from a buy on June 4.
AMC Networks Inc. AMCX, +0.20% ranks fourth on the list, with a 32% gain in four weeks and 25.58% short interest. As readers have pointed out, this is a different company from the “AMC” we that has been one of the most heavily covered meme stocks: AMC Entertainment Holdings Inc. AMC, +15.38%, which along with GameStop and Bed Bath & Beyond Inc. BBBY, -5.48% was among eight meme stocks profiled last week.
A changed market
Getting back to that 40.38% short interest for Workhorse, Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF HDGE, -0.09% — which is meant to be used as a hedging tool — said in January that a percentage of short-sales to total shares available for trading of “over 30% to 40% is outrageously high.”
There are now only nine stocks among the Russell 3000 shorted more than 30%. During a follow-up interview on June 14, Lamensdorf said hedge fund managers were reducing their use use of leverage to take short positions.
“They don’t need as many shorts. They think in this environment shorting isn’t helping them hedge risk — it is actually creating more risk,” he said.
Lamensdorf went on to say that anecdotally, hedge fund managers have been using “complete buy stops,” to automatically cover short positions more quickly than they used to.