Stocks with short-squeeze potential could be back in play this year. Short sellers had a profitable year in 2022, as the S&P 500 fell by around 19%. Shorted stocks returned 30.8% last year, surpassing the benchmark index by a wide margin, according to S3 Partners. In total, short sellers in the United States earned approximately $300 billion in mark-to-market profits.
Carvana (NYSE: CVNA) rewarded short traders the highest out of all stocks, with at least $100 million in short interest. CVNA had a spectacular short gain of 377.6%, according to CNBC. Similarly, Beyond Meat (NASDAQ: BYND) returned 128.2% to short sellers.
With a total short interest of $166.03 billion as of December 30, the information technology sector was the most-shorted industry in monetary terms. The consumer discretionary sector came in second with $137.43 billion in short interest.
What is Short Selling?
Shorting a stock entails borrowing shares that you do not own and then selling them to another investor. Shorting, or selling short, is a negative stock position; in other words, you might short a stock if you believe its share price will fall.
Short-selling allows investors to profit on the decline in the value of stocks or other securities. To sell short, an investor must borrow the stock or asset from someone who owns it through their brokerage firm. The investor then sells the stock and keeps the proceeds.
The short seller anticipates that the price will fall over time, allowing him or her to repurchase the shares at a cheaper price than the original sale price. Any money left over after purchasing the stock back is profit for the short-seller.
5 Short-Squeeze Stocks with Expensive Borrowing Fees
CTB fees are one of many signs to look for when shorting a company. In general, a high CTB charge indicates a substantial short-seller demand. This is due to the fact that when the number of shares available for short sale decreases, lenders must charge a greater fee to stay up with demand. These fees are also considered in the risk/reward situation of a short seller. A larger CTB charge reduces the likelihood of a profitable short trade.
Furthermore, a large CTB cost may indicate a tight crunch. Ihor Dusaniwsky, Managing Director of S3 Partners, explains:
“A rise in stock borrow rates may push (squeeze) some short sellers to close their positions — getting out to realize their remaining mark-to-market profits and withdrawing before other buy-to-covers drive up the stock price.“
With that in mind, these are the stocks with the highest borrow costs, with more than $100 million in short interest as of December 30:
Beyond Meat: 102.57%. Short interest: 39.80% or $281.32 million.
Nikola (NASDAQ:NKLA): 40.32%. Short interest: 29.75% or $220.53 million.
AMC Entertainment (NYSE: AMC): 44.57%. Short interest: 22.00% or $461.71 million.
MicroStrategy (NASDAQ: MSTR): 43.32%. Short interest: 36.47% or $482.42 million.
Fisker (NYSE:FSR): 24.57%. Short interest: 33.51% or $428.17 million.
Beyond Meat is at the top of the list, with a CTB fee that is more than double that of AMC, which is in second position. Since its initial public offering (IPO) in 2019, the synthetic meat company has been steadily declining. Meanwhile, meme-favorite AMC has the second-highest dollar value short interest on the list, and has always been on most investors’ short squeeze list.
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