Short Sellers Clean Up in Market Rout

After many years in the wilderness, short sellers are once again making money in 2022, with some of the biggest gains coming from formerly frothy technology stocks that have crashed hard this year. 

Over half of the gains came in the past 30 days, as the stock market sell-off picked up speed, according to a new report from S3 Partners. 

As of May 13, U.S. short sellers were up $144.1 billion in mark-to-market profits (after deducting financing costs) over the past 30 days. That represents a return of 15.21 percent on an average short interest of $947 billion, according to the report.

Year to date, they’ve made $215.6 billion, for a 23.87 percent return on an average short interest of $903 billion, according to the report.

Carvana, the struggling online used car marketplace that has been popular with the Tiger group of hedge funds, was the most profitable short so far, in terms of percentage gains. Carvana short sellers were up more than 93 percent over the past 30 days, earning almost $1.6 billion. 

Some big names sold out of Carvana during the first quarter, including DI Capital Partners and Stanley Druckenmiller.  But Tiger Global added close to 1.3 million shares during the quarter to own almost 18 percent of Carvana at the end of March, making it the company’s fourth largest holder. The hedge fund was down 44 percent this year through April.

Following the swoon in cryptocurrencies, Coinbase Global was the next-biggest gainer. Short sellers made gains of 81 percent — $837 million — over the past 30 days betting against the cryptocurrency exchange platform.

In terms of dollar gains over the past 30 days, the most profitable shorts are Tesla, where shorts are up almost 28 percent and have made $6.1 billion during that time; Amazon, up 33 percent for a gain of $3.3 billion; Apple, up 16 percent for a gain of $2.6 billion; Block, up 45 percent for a gain of $2 billion; Nvidia, up 28 percent for a gain of $1.4 billion; Netflix, up 62 percent for a gain of $1.4 billion, and Carvana. 

While many short sellers were trimming exposures to take profits, according to S3 Partners, there was increased short selling in a number of big tech stocks. Among them were Alphabet (formerly Google), Netflix, Microsoft, Amazon, Carvana, Lucid Group, and Meta Platforms (formerly Facebook).

“Short sellers continue to outperform the U.S. markets in 2022,” said Ihor Dusaniwsky, managing director of predictive analytics, and Matthew Unterman, director of predictive analytics, in the report.

The S&P 500 was down 10.63 percent, while the Nasdaq declined 14.96 percent and the broader Russell 3000 fell 11.21 percent during the 30-day time period of the report.