Short selling in the FAANG stocks rose in the month of October and the pace of such selling will continue in November given the continued sell-off being seen in the tech giants, a report by analytics company S3 Partners said.
"There was increased short selling in the FAANG stocks throughout all of October, and we expect continued short selling as this tech reversal continues," Ihor Dusaniwsky, the managing director of Predictive Analytics in S3 Partners, said in a report.
The amount of shorts in FAANG - Facebook Inc (NASDAQ:FB), Apple Inc (NASDAQ:AAPL), Alphabet Inc Google (NASDAQ:GOOG), Amazon.com Inc (NASDAQ:AMZN) and Netflix Inc (NASDAQ:NFLX) - rose by 7% so far in October.
Facebook shares shorted increased by 2.9 million shares; Amazon by 1.5 million shares; Apple by 1.6 million shares; Netflix by 419,000 shares; and Alphabet by 58,000 shares, S3 calculated.
"Shorting the FAANG stocks provides a portfolio manager more hedging bang for the buck than by shorting a basket of S&P securities," Dusaniwsky said.
READ: Tesla short-sellers increase positions while longs get out after Musk is sued by the SEC, says S3 Partners
In the previous week, the S&P 500 declined by 3.9% while the FAANG stocks declined by 4.7%, "an 18% outperformance on the downside by the FAANG stocks which supports the theory that a significant amount of FAANG short interest is a hyper-charged Beta hedge for many portfolio managers."
"In addition to acting as a portfolio hedge, momentum short sellers continue shorting these out-performing stocks looking for price reversions, which was a losing proposition for all the FAANG stocks besides Facebook in 2018," the report by S3 added.
The situation could easily reverse if the FAANG stocks turn around and rally strongly before the year ends.
"October’s significant increase in shares shorted will increase the potential for some volatile swings to the upside," Dusaniwsky explained."While long shareholders incurred large losses from these widely held stocks, short sellers made $1.62 billion in mark-to-market profits last week."
Reporting by Rene Pastor, contactable on [email protected]