What does it mean when ASX shares have large short positions on their capital (i.e., shares on issue)?
Well, quite simply, it means a number of professional traders think the share price is going to fall.
This prediction could be based on a number of factors. Perhaps operational issues within the business. Perhaps plain old investor exuberance that has pushed the price up too much.
So, they short-sell the stock, which means they place a bet that the share price will fall.
This strategy is only available to professional traders and sophisticated investors.
If you're holding some ASX shares with nice capital gains, it may be helpful to monitor their short positions.
If you see a consistent increase, that will tell you that the pros think the price is going to fall from here.
And you can do with that information what you wish.
The Australian Investments and Securities Commission (ASIC) makes it easy for us to monitor short positions.
ASIC publishes a daily report with the exact percentage of shares on issue that are shorted for all ASX shares.
To give you a guide, a short position of 7% to 10% is considered high.
Another thing the short report can tell you is when the pro traders are closing their short positions.
This typically means they think the share price isn't going to fall from today's level. So, they start buying the shares on-market to close out their bets.
But a word of warning here.
If the short positioning on an ASX share is falling, that doesn't necessarily mean the pros think the price will rise from here.
Again, you can use this information as you wish. For example, reduced short positions could signal a good time to buy more shares in a company you believe in for dollar-cost averaging.
With all that said, let's take a look at six ASX shares that have significantly declining short positions.
To do this, we've used the final daily ASIC report for each of the past five quarters to identify the trends.
Block Inc CDI (ASX: SQ2)
The Block share price closed the session on Thursday up 1.78% at $115.68 per share.
The buy now, pay later stock is up 25.19% in 2023 and up 11.2% over the past 12 months.
The short positioning on Block shares has dived from 10.24% this time last year to 0.94% today.
| Quarter | Short position in final week of quarter |
| June 2022 | 10.24% |
| September 2022 | 11.02% |
| December 2022 | 2.33% |
| March 2023 | 1.42% |
| June 2023 | 1.01% |
| Now | 0.94% |
Zip Co Ltd (ASX: ZIP)
The Zip share price closed the session on Thursday up 5.81% to 46 cents per share.
Zip shares are down 18.75% in 2023 and down 70% over the past 12 months.
The short positioning on Zip shares has reduced dramatically only in recent months.
The short position was 10.06% on the last trading day in the March quarter. It's almost half that today.
| Quarter | Short position in final week of quarter |
| June 2022 | 7.36% |
| September 2022 | 7.52% |
| December 2022 | 7.39% |
| March 2023 | 10.06% |
| June 2023 | 4.76% |
| Now | 5.14% |
Flight Centre Travel Group Ltd (ASX: FLT)
The Flight Centre share price just hit a new 52-week high and remains the most shorted of all ASX shares.
The short position at 9.85% is high, but it's about 40% lower than where it was this time last year.
As my colleague Sebastian points out, Flight Centre may end up in a short squeeze. This happens when short sellers are forced to close out their positions because they appear to have it wrong.
In a squeeze, lots of short sellers close their positions (thus, buy shares) on-market at the same time. This can force the share price up further.
This may well be happening now, given the company's positive update and increased earnings guidance last week.
| Quarter | Short position in final week of quarter |
| June 2022 | 16.17% |
| September 2022 | 14.87% |
| December 2022 | 14.69% |
| March 2023 | 11.88% |
| June 2023 | 10.47% |
| Now | 9.85% |
Betmakers Technology Group Ltd (ASX: BET)
The Betmakers share price closed the session on Thursday up 8.82% to 19 cents per share.
The ASX tech share is down 34% in 2023 and down 64% over the past 12 months.
The short positioning on Betmakers has reduced by about two-thirds over the past year.
| Quarter | Short position in final week of quarter |
| June 2022 | 11.89% |
| September 2022 | 14.21% |
| December 2022 | 13.02% |
| March 2023 | 5.96% |
| June 2023 | 4.85% |
| Now | 4.86% |
Nanosonics Ltd (ASX: NAN)
The Nanosonics share price closed yesterday's session up 2.13% to $4.80 per share.
The ASX share is up 13% in 2023 and up 3.2% over the past 12 months.
The short positioning on Nanosonics has also reduced by about two-thirds over the past year.| Quarter | Short position in final week of quarter |
| June 2022 | 12.39% |
| September 2022 | 8.36% |
| December 2022 | 6.43% |
| March 2023 | 2.61% |
| June 2023 | 4.29% |
| Now | 4.17% |
Kogan.com Ltd (ASX: KGN)
The Kogan share price closed yesterday's session up 3.9% to $6.65 per share.
The online ASX retail share is up 83.7% in 2023 and up 41.5% over the past 12 months.
The short positioning on Kogan has fallen dramatically from about 8.5% in June last year to less than 2% today.| Quarter | Short position in final week of quarter |
| June 2022 | 8.47% |
| September 2022 | 7.23% |
| December 2022 | 4.23% |
| March 2023 | 3.54% |
| June 2023 | 2.03% |
| Now | 1.96% |
For regular insights on short positions, my colleague James reports the top 10 most shorted ASX shares every week.
