Insider Monkey

16 Most Shorted Stocks Right Now

Ramish Cheema
10 min read

In This Article:

In this piece, we will take a look at the 16 most shorted stocks right now. If you want to skip our introduction to short selling, then take a look at 5 Most Shorted Stocks Right Now.

One of the most intriguing plays on the stock market is short selling. This is because it goes against conventional investment logic, which typically seeks to profit from an increase in share prices. A short seller is betting on a negative share price movement, a risky endeavor that carries the chance of significant losses that can often be twice or thrice the original investment. At the same, the opportunity for a profit is also massive, and often higher than what you would see in a long position.

There are several ways in which one can short the market. The most common one out of these is simply borrowing the shares of a firm to sell them on the market and waiting for a price drop to scoop them up at a lower price to make a profit. Another way to profit from a share price drop is to buy a Put option. A Put is a relatively safer way of shorting a stock. This option, officially called a financial derivative instrument, provides the buyer of an option with the right to sell the underlying security at a predetermined price.

So, for instance, if shares of Firm A are currently trading at $10 and a trader buys a Put with the predetermined security price (the strike price) of $10, then if Firm A's share price drops to $5 the option will be 'in the money' as the option buyer will be able to sell the shares at a higher price. A Put is a safer way to short a stock since it limits the downside to the short seller. This is because these options charge a premium per share which is the amount paid by the option buyer to the seller. If the Put option becomes out of money, i.e. its underlying security or stock rises in value then the option buyer will not exercise the right to sell the shares and the only loss they will make is will be the premium paid. As opposed, full fledged short selling does not provide any hedge whatsoever against a share price gain and the short seller has to pay all of the share price increase in order to repurchase the borrowed shares.

Briefly moving towards the market, one of the biggest short plays this year is the one by Hindenburg Research against Icahn Enterprises L.P. (NASDAQ:IEP). Icahn Enterprises is controlled by the well known billionaire investor Carl Icahn who is renowned for his activist investment approach that sees him take large stakes in firms which he believes are underperforming. However, in a rather strange twist of irony, Hindenburg alleged in its report that Icahn Enterprises was using proceeds from new investments to pay out dividends to old investors and pointed out that Mr. Icahn had followed the trend of several billionaires by taking out loans against his Icahn Enterprise holdings. According to the short seller, these have led to Icahn Enterprises' stock being overvalued because of improper dividend payments and put Mr. Icahn at risk of being called out by banks should his firm's stock depreciate. Icahn Enterprises, whose shares have been relatively stable and traded within the $41 - $53 band since 2020, saw the price drop by 20% and it has been unable to regain these losses since then as they are currently trading for $19.90 at the time of writing.

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