While short interest is reported on a delayed basis about every two weeks, S3 Partners uses an algorithm based on data from multiple sources and discussions with investors to calculate how much a company’s shares are shorted on a daily basis. Without getting into specifics, in talking with Ihor Dusaniwsky, S3 Partner’s Managing Director of Predictive Analytics, it appears that the calculation has a small enough margin of error to provide a good read on the amount and trend of a stock’s short position.
Tesla has the largest short position
S3 Partners estimates that Tesla has over $10 billion, $10.7 billion to be exact, of short interest in its stock. Over the past 7 days it increased by over $2 billion, which is a bit interesting since, as shown in the chart below, the stock price rebounded after it released its preliminary March quarter production and delivery numbers. While investors cheered the results, even though production was short of the 2,500 Model 3’s being built per week at the end of the quarter, shorts came away that the company, or at least the stock, will continue to struggle.
By looking at the dollar amount of a company’s short position, and especially the daily change, investors can get a read if shorts are increasing or decreasing their position (and therefore view) on a stock. One scenario Dusaniwsky describes is if a stock is down and the short interest is flat, that means long investors are selling the shares. Another scenario is if a large enough amount of a shorted stock is closed, but the stock stays flat, long investors are only buying enough shares to absorb the shorted shares. The long investors have not increased their bullish outlook for the stock.
In talking with Dusaniwsky he believes that a better way to judge how bearish investors are on a stock is how much of the equity is shorted in dollar terms vs. what percentage of a company’s shares are shorted or the days to cover based on average trading volume. Large cap stocks will almost never have a large percentage of their shares shorted and trading volumes can significantly increase on a given day making the days to cover calculation almost meaningless. He equates using days to cover similar to looking at a baseball player’s batting average vs. using advanced sabermetrics.
The FAANG stocks occupy 5 of the top 7 short positions
It isn’t too surprising that the largest market cap stocks, most of which have high valuations, are among the largest shorted. As can be seen in the table below, these were the short positions of the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google/Alphabet) as of April 11. While the positions may change among them, getting a read on the dollar amount swings is more important.
- Apple had the second largest short position at $9.4 billion
- But has decreased significantly, over $2 billion, in the past 7 days
- It had been the largest shorted stock since March 2016
- AT&T had the third largest short position at $7 billion
- Alphabet/Google was the fourth largest at $6.9 billion
- But it decreased by $1.3 billion over the past 30 days
- Amazon was the fifth largest at $6.1 billion
- And saw a $1 billion decrease in the past 30 days
- Netflix was the sixth largest at $5.9 billion
- It also had a $1 billion decrease over the past 30 days
- Facebook was the seventh largest at $5.1 billion
- It increased by $300 million over the previous 7 days
- With the rebound in Facebook’s shares the shorts probably took a bit of a hit