Like it or not short selling shares is a trading strategy here to stay and if nothing else it can give share market investors a view on what businesses some professional investors expect to fall in value.
While short sellers are often wrong and end up wearing losses sometimes their bets are correct.
Generally the higher the percentage of a stock sold short the more bearish sentiment around it. Anything more than 5% sold short is a reasonable amount, with 10% or more perhaps a warning sign that a business is sailing into trouble.
But remember the higher the short position the stronger the surge higher if it turns out short sellers are incorrect in their assumptions.
So let's take a look at five well known businesses being shorted today. All data accurate as at April 3 2019.
Crown Resorts Limited (ASX: CWN) has only 1.6% of its scrip shorted, but that's still around $130 million worth of shares and given it jumped 20% today on the back of a takeover bid we can see why short selling is a high stakes game.
Perpetual Limited (ASX: PPT) has 9.3% of its shares shorted, which is a lot for a fund manager that shouldn't be too hard to value. However, traders are probably betting the stock is set to fall after a recent price surge reportedly triggered by an index tracking fund buying into the business.
NextDc Ltd (ASX: NXT) has 12.8% of its shares shorted as speculators bet it may be overvalued given its ongoing capital expenditure commitments and high price-to-earnings multiple.
Rio Tinto Limited (ASX: RIO) had 5.4% of its shares shorted presumably because traders feel it has overshot to the upside after a strong run. Betting against stocks printing new highs is a dangerous game and the shorters will need nerves of steel or deep pockets for this one.
BHP Group Ltd (ASX: BHP) has 3.7% of its shares shorted perhaps because speculators feel commodity prices are ripe for a fall. However, this seems a dangerous game to play with BHP hitting a new 52-week high today and it being a particular favourite of the Australian investing community for now.
