© Reuters. FILE PHOTO: People are seen on Wall Street outside the New York Stock Exchange (NYSE) in New York City, USA, March 19, 2021. REUTERS / Brendan McDermid / File Photo
(Reuters) – Institutional investors have been reducing their bearish bets on Wall Street’s shorter stocks in response to a growing appetite for riskier bets, according to strategists at Vanda (NASDAQ 🙂 Research.
Short sellers are bearish investors who borrow stocks, with the goal of buying them back when the price drops to cover the loan and keep the difference.
Shares very short rallied on Wednesday and short sellers were forced to drop bets to cut their losses, a situation known as a short contraction.
“We believe institutional investors were forced to hedge their shorts, either because they were reducing gross income or because they feared a pickup in risk sentiment could inflict pain on their short book,” said strategists at Vanda Ben Onatibia and Giacomo Pierantoni on Wednesday’s session.
Some of the top stocks traded short in the United States, in terms of percentage of shares sold short, have recently rallied, according to the latest data from S3 Partners.
The top short, Big 5 Sporting Goods, with 41.5% of its float sold short, was up almost 4% in the last three sessions, but was down 0.5% on Thursday. Altimeter Growth Corp, with 36% of its shares short, was up 4% on Thursday with a sharp increase in trading volume.
Blink Charging Co (NASDAQ :), which has 36% of its float short, was down 2.5% on Thursday after rising 8% in the previous three sessions, while WorkHorse Group, with 35% of its Floating short, it fell 2.5% Thursday after rising. 10.6% in the last two sessions.
Meanwhile, the top three Wall Street indices rose more than 1% on Thursday after gaining ground on Wednesday as well.
Very short names also garnered high retail mentions on Reddit’s WallStreetBets, Vanda strategists said, noting that comments on such actions on the forum were very close to the daily average in September and October.
Retail investors, however, had nothing to do with the short contraction, strategists said, as individual purchases of these stocks on Wednesday were much smaller than most days in September and October.
On WallStreetBets, an investor forum on Reddit.com, some commentators noted Wednesday that it was a difficult session for bear investors.
“Somewhere there’s a bear crying …” wrote a WallStreetBets member.
Vanda argued that if the stock’s contraction continues, “it could eventually entice retail investors to abandon crypto investments,” as they say “that rotations between those two asset classes are very common.”
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