We have not seen a short squeeze in BBBY prior to today’s over +50% price move, but if the stock continues to rally, we could see some near-term short sellers exit their positions and begin to pocket (realize) the profits they earned in 2022. Of course, the crucial difference between BBBY and other crowded shorts is that there is a definite threat of bankruptcy, which could embolden shorts to hold onto their positions, incur some temporary losses, and wait out this rally in anticipation of a $0.00 stock price in bankruptcy.

BBBY short interest is $82.7 million, 39.93 million shares shorted, 52.07% SI % Float. and 34.24% S3 SI % Float (which includes synthetic longs created by every short sale in the Float number).

BBBY has the second largest SI % Float for stocks with over $10 million of short interest.

Shorts have been active in BBBY with 25.1 million of new short sales since it hit its 2022 early year high of $27.23/share on 3/29/22. This is a +169% increase in total shares shorted as its stock price crashed -91%. Over the last thirty days we saw 3.8 million shares of new short selling, a +10.4% increase in total shares shorted as its stock price slumped -33%.

Short selling activity could have been much larger, but lack of stock loan supply has limited the ability to get short locates and stock borrows to settle new short trades. We are seeing 99% of the stock loan pool already taken down and less than half a million shares left to borrow, at rates over 40% fee.

While shares shorted decreased by almost two-thirds since early 2022, we have seen institutional long shareholders exit their positions since 2021.

Using our new Black MaP product, we can see historical active (including hedge fund) and passive long share holdings. Long institutional BBBY shareholding declined by 69% since 2020, from 152 million shares to 47 million shares today.

Shorting BBBY was a very profitable trade in 2022 but after its recent rally, not so much in 2023. BBBY shorts were up +$179 million in 2022 year-to-date mark-to-market profits, up +73% on an average short interest of $247 million. So far in 2023 BBBY shorts are down -$27 million, -35% on an average short interest of $76 million. That includes down $43.5 million on today’s +52.7% stock price move.

BBBY has become less institutional and more retail on the long side with large institutional activity on the short side (the vast majority of short selling is dome by institutions). This mix makes for a volatile stock since fundamentals are not the primary driver of price moves – the stock is becoming much more of a momentum and technical name – outsized and sudden price fluctuations will not be out of the ordinary (as we see in today’s stock price action).

If the threat of bankruptcy becomes more of a certainty the prospect of a BBBY short squeeze becomes less and less, we can expect minimal short covering as short sellers wait for a $0.00 stock price.

If bankruptcy is not in BBBY’s future, its rallying stock price will force a massive short squeeze and short sellers will rush to the doors and buy-to-cover in order to retain some of the mark-to-market profits they earned in 2022.