Ocado tops the list as the most-shorted stock after the grocer/robotics company reported a £501mln loss last month.
The online retailer said revenue was broadly flat at £2.5bn in the 12 months to 31 December 2022, but pre-tax losses widened because of rising costs, investments and depreciation and amortisation.
As a result, more than 6% of its stock is currently on loan to hedge funds, meaning it tops the Financial Conduct Authority’s list of most-shorted London stocks.
Shorted positions are held at BlackRock Investment Management, D1 Capital and Whale Rock Capital Management among others.
Other heavily shorted stocks included online retailer THG, which has 4% of its stock in short positions, Naked Wines at 4% and Sainsbury's at 3%.
Ocado experienced a period of relative prosperity during the pandemic as shoppers were forced to use online services.
However, the return to being a heavily shorted stock is the norm for the FTSE 100 company, according to retail analyst Richard Hyman, quoted on the website Retail Gazette.
“If you look back before the pandemic then Ocado was often massively shorted- this is a return to form,” he said.
“I think the thing is that the market doesn’t have any of the confidence in Ocado’s business model that the leadership team and founders have.”
Short positions
Shorted positions are a bet by large hedge funds and financial institutions that the share price of a stock will fall, meaning the traders holding the positions will profit as a result.
Essentially, it works by traders selling the stock first with the intention of repurchasing at a lower price, pocketing the difference.
In common practice, short sellers will ‘borrow’ the shares from an investment bank or other financial institution.
As with most trades, a short position is not without risks.
While the profits are limited given the lowest the stock can fall in value is zero, the highest the stock could rise is unrestricted.
Short sellers also risk being short squeezed, a phenomenon seen in 2021's ‘memestock’ craze with GameStop.
A short squeeze occurs when a heavily shorted stock suddenly begins to increase in price, with the GameStop surge a result of Reddit investors buying the stock in reaction to the heavily shorted positions that were held on it.
Ocado will be releasing a first-quarter update tomorrow on its joint venture with Marks and Spencer.