How can investors make money when stocks are going down? They can sell stock they do not currently own, betting that the price will go down. This is known as a short sale, or holding a short position in a stock.
To sell short, you are effectively borrowing stock from your broker and selling the stock at the current price. You must replace the stock at a later time by buying at the market price at that time. If the price falls, you make money since the proceeds from the earlier sale are greater than the cost to replace the stock. Conversely, if the stock rises, you lose money.
Here are a few of the stocks that are currently shorted the most as of this writing, meaning that investors are betting on prices to drop further.
- Chesapeake Energy (NYSE: CHK) – With 225 million shares shorted, Chesapeake has just over one-third of its tradable stock in a short position.
- Vale SA (NYSE-VALE) – Over 191 million shares of this Brazilian metals and mining conglomerate were shorted as of October 19th.
- Frontier Communications (NASDAQ: FTR) – Frontier has the highest number of shorted shares in the NASDAQ at 168.8 million.
- Petroleo Brasileiro (NYSE:PBR) – Another Brazilian energy company joins the list, with almost 153 million shorted shares.
- Sirius XM (NASDAQ: SIRI) – 153 million shares of the satellite radio company's stock are shorted. Could some of this be due to Howard Stern’s contract expiring soon?
- Advanced Micro Devices (NASDAQ: AMD) – AMD has over 20% of its stock shorted at 133.6 million shares, but at least that's a slight improvement over the position at the end of August.
- MannKind Corporation (NASDAQ: MKND) – The biopharma company has 126.8 million shares shorted — a whopping 48.7% of tradable stock.
- AT&T (NYSE: T) – The telecom giant has over 133 million shares shorted.
- Sprint (NYSE: S) – The market must think Sprint is an even better bet for losses than AT&T. They have 159.7 million shares shorted for over 25% of their tradable stock, compared to AT&T's 2.2%.
- Apple Inc. (NASDAQ: AAPL) – The technology giant is seventh on the NASDAQ's list of biggest short positions, with over 87 million shorted shares.
- Microsoft Corporation (NASDAQ: MSFT) – Microsoft's 71.4 million shorted shares puts it close on the heels of rival Apple Inc. at the ninth position in the NASDAQ.
ETFs and other traded funds can be shorted in the same way as corporate stocks. As of this writing the SPDR S&P 500 ETF Trust (NYSE: SPY) had the highest total number of shorted shares by far (371.4 million shares), indicating that most investors expect continuing short-term drops in the S&P 500.
Do not consider the mention of any of these stocks or funds as an endorsement to engage in short-selling them. They are just reflections of stocks that are highly shorted at the moment, meaning that for whatever reason many investors are expecting the stock price to fall in the short term. You will have to do your own homework to decide when and if to short-sell any particular stock.
Besides, the most-shorted stock list is likely to change substantially by the time you read this. Seek the freshest information possible before engaging in short selling.
You can get a general update on heavily shorted stocks at the Wall Street Journal market center, among other sites. This link will show you the current NASDAQ short positions, with a tab for the NYSE. You can see the total number of shares shorted and the change in the number.
The percent float value shows the percentage of tradable shares that are currently shorted — a large number of floated shares does not necessarily mean a large percentage. A larger percentage of floated shares indicates higher market confidence that the stock price is headed down.
Feel free to dabble in short selling if you have the money and sufficient time and acumen to do the proper analysis — but if you lack any of those, it is probably best for you to steer clear.
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