Managing Director of Predictive Analytics, S3 Partners
Director of Predictive Analytics, S3 Partners
Tesla Inc (TSLA) has held the top spot in the short interest league tables for 864 days, almost two and a half years since April 2020 but Apple Inc (AAPL) has recently recaptured the crown. AAPL short interest is $18.44 billion, 112.86 million shares shorted and 0.70% Short Interest % of Float versus TSLA short interest of $17.44 billion, 57.30 million shares shorted and 2.19% Short Interest % Float.
SI % Float
S3 SI % Float
ALPHABET INC - A
ALIBABA GROUP ADR
ALPHABET INC - C
PALO ALTO NETWORKS INC
META PLATFORMS INC
EXXON MOBIL CORP
S&P GLOBAL INC
LOWES COS INC
TSLA’s short interest was extremely volatile since 2020 increasing from $10.93 billion to $17.44 billion, but with a high of $51.04 billion and low of $6.51 billion. AAPL’s short interest was much less volatile since 2020 while increasing from $13.33 billion to $18.44 billion, with a high of $20.36 billion and low of $7.93 billion.
Looking at short interest tells us how many dollars traders are putting at risk shorting these two stocks – a measure of short side conviction, portfolio hedging activity (depending on the shorted stock), derivative hedging activity and breadth of short selling in the market. But short interest is not the only tool in a trader’s toolbox that is used to quantify and qualify the short side of the market. S3’s Black App allows traders to use the most relevant metrics to measure the short side.
While short interest shows us dollars at risk it does not show us the short trading activity that directly affects a stock’s price. Increases or decreases in short interest are a function of an increase or decrease in shares shorted and the change in a stock’s price. Therefore, if shares shorted stay static but a stock’s price increases its short interest increases – but with no short side trading in the stock, short selling or short covering, the change in short interest has no effect on the rise or fall of the underlying stock’s market price. Changes in share shorted, shorting or covering, move a stock’s market price.
Over the last thirty days we’ve seen short covering in TSLA but short selling in AAPL. TSLA has had 7.05 million shares bought to cover, worth $2.15 billion, a -10.96% decline in shares shorted as its stock price rose 1.46%. On the flip side of the coin, we saw an additional 1.09 million shares shorted in AAPL, worth $179 million, a 0.98% increase in shares shorted as its stock price fell -5.04%.
This dichotomy in short side trading between TSLA and APPL continued throughout 2022. The 10.33 million TSLA shares covered in 2022 helped push its stock price up while AAPL’s additional 15.50 million shares shorted in 2022 helped push its stock price down.
Over a longer term, we have seen net short covering in both stocks since 2020 when AAPL topped the short interest league tables. We have seen 41.17 million of AAPL shares bought to cover, worth $6.73 billion at today’s stock price, a -27% decline in shares shorted as its stock price increased by +171%. A drop in the bucket compared to the 236.06 million TSLA shares bought to cover, worth $102.91 billion at today’s stock price, -86% decline in share shorted as its stock price soared +1,001%.
Another metric that is used to qualify short activity in a stock is Short Interest % Float or S3 Short Interest % Float (which includes the synthetic long created by every short sale in the denominator to reflect the true number of tradable shares in the market). While a valuable metric as a partial view of how crowded a stock is on the short side relative to its market cap, it should not be used as a comparative metric between stocks.
Using this metric should only be used for stocks with similar market caps and float shares otherwise we are not comparing apples to apples. Even between mega cap stocks like AAPL and TSLA, using SI % Float or S3 SI % Float does not provide meaningful comparable data points.
AAPL’s SI % Float increased from 0.59% to 0.70% in 2022, an increase of 0.11%, while TSLA’s SI % Float decreased from 2.78% to 2.19%, a decrease of 0.59%. A more than 5X difference of SI % Float change. But AAPL’s shares shorted increased from 97.36 million to 112.86 million in 2022, an increase of 15.50 million shares, while TSLA’s shares shorted decreased from 67.63 million to 57.30 million, a decrease of -10.33 million shares. Just a 1.5X difference of shares shorted change.
If we look at AAPL’s and TSLA’s SI % Float for the last two years it looks like TSLA’s short exposure declined appreciably, which is not true as short interest (dollars at risk) increased by $6.5 billion. But AAPL’s SI % Float looks relatively constant while short interest (dollars at risk) increased by $5.1 billion.
Different short side metrics are useful in different situations just like a golfer uses different golf clubs for different shots.
Short interest tell us that the short side dollars at risk for TSLA declined significantly, by $24.4 billion, since 2021 while APPL’s dollars at risk grew slightly, by $6.3 billion. TSLA traders were actively trimming their shares shorted positions as TSLA’s stock price grew by +31%. On the other hand, AAPL traders were actively short stock into AAPL’s +22% price move either as a technology hedge or outright Alpha generating position.
The change in shares shorted in both TSLA and AAP give us some insight as to the whether their price moves were based solely on long buying or selling pressure or whether shorts sellers were an impetus or hindrance to price moves. TSLA’s short covering aided in its price appreciation while AAPL’s short selling was a drag on upward price movement.
When looking at SI % Float, TSLA’s much larger numbers make it seem it is more crowded than AAPL, but they are both relatively equally crowded when looking at S3’s crowded score, with TSLA at 25.00 and AAPLE at 27.50. Even when TSLA’s SI % Float was in the 20%’s it’s Crowded score remained in the 20’s. The large floats in mega-cap names, the extensive trading in mega-cap names and large institutional holdings of mega-cap names providing stock loan liquidity more than offset the crowded impact of large notional short interest. In fact, there are no crowded mega cap stocks right now.
The change in the top spot in the short interest rankings was primarily based on short sellers cutting their TSLA exposure and not a huge jump in AAPL short selling. TSLA short interest declined in 2022 as short sellers have continued to cover and reduce their positions in response to a long-term short squeeze even though TSLA’s stock price is down for the year. AAPL short increase and short selling has increased in 2022, reflecting either projected underperformance in the stock or the use of AAPL as a hedge for a long Tech portfolio exposure.