Notional short interest does not measure risk, daily risk (VAR) is a function of notional & volatility. Daily volatility ranges from 2% for AAPL to 16% for MRNA.

MU’s VAR is highest at $1.62B, 2.5 times NVDA’s on a $27.1B notional at a 6% daily move. NVDA is next at $1.48B, the largest notional but lower volatility.

Investors can size and hedge their own exposures by multiplying their position value by daily volatility, which is annualized volatility divided by roughly 16.

The notional value alone does not indicate the risk of a short position. The notional times the daily volatility is the value at risk for being long or short the position.

The daily volatility can be as low as 2% for AAPL or as high as 16% for MRNA.

The table below shows the 10 US stocks with the highest daily value at risk (VAR).

The highest value at risk is MU, whose annualized volatility is close to 100%, or 6% a day. Applied to a $27.1B short notional, this produces a daily VAR of $1.62B. Micron’s daily volatility is 2.5 times NVDA’s in percentage terms.

Second is NVDA, which has the highest market cap and short interest, although its volatility is only midrange. A $61.3B notional multiplied by a 2.41% daily move gives $1.48B VAR.

A decline in NVDA’s volatility has reduced its VAR despite continued growth in market capitalization and short notional.

Third is MSFT, again with a large market cap but medium volatility, resulting in a $1.13B value at risk.

An outlier is MRNA, with a small market cap and notional, but the stock moved 180% in a single session on 8/18 on positive Phase 3 cancer vaccine data. This lifted average daily volatility to 15.94% and value at risk to $1.04B. Prior to that move, annualized volatility was about 80%, or roughly 5% per day, suggesting the current risk level may prove temporary.

MU’s value at risk rose as both volatility and notional increased, with the stock up 225% over the period. Value at risk increases faster than either variable independently because it is the product of notional exposure and volatility.

A long position with 2% daily volatility is not an effective risk offset for a short position with 5% daily volatility, even if the notionals are identical.

Investors can apply the concept to their own positions by multiplying position size by daily volatility, estimated as annualized volatility divided by √252, or roughly 16.

Want to know more? Access this data in real time using S3’s BLACK APP & BLACK MAP

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.