Bears shorting ten of the most-shorted stocks this year have suffered a combined $17 billion in mark-to-market losses through Thursday, as per data analytics firm S3 Partners. Tesla, which has seen a 69% surge since the beginning of 2023, dealt the largest blow to its short-sellers, with traders betting against the company seeing losses totaling $7.2 billion.
This year is shaping up to be a difficult one for short-sellers. Last year was a year for the shorts, with S3 estimating combined paper gains of $57 billion in 2022. During the same year, investors punished companies deemed to be the most speculative, particularly those with elevated price-earnings ratios. Controversial companies like Tesla were heavily punished as a result.
Bob Doll, chief investment officer at Crossmark Global Investments, noted that the story is different this year for short-sellers. “If you shorted unprofitable names with high PEs, you made a lot of money; if you are short right now, you are getting squeezed real hard,” Doll said.
Tesla has always caught the attention of short-sellers, with the company being a target for years. S3 noted that at the end of 2022, Tesla was the most shorted stock, and those who were betting against the company were seeing paper gains of about $16 billion. This changed in 2023, however, following a round of price adjustments and strong Q4 and FY 2022 earnings results.
So far this year, there has been a resurgence in the appetite for growth and tech stocks that experienced a slump in 2022, such as Tesla. This has led to a surge in the stock market, with the Nasdaq 100 Index seemingly approaching bull market territory. Despite this trend, skeptics remain convinced that the current rally is short-lived, resulting in a renewed interest in short-selling highly-valued stocks.
As of writing, Tesla shares are trading at $205.65 per share. The company currently has a market cap of about $659 billion.
Disclosure: I am long TSLA.
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