Most Shorted basket pulled back from its October peak but still outperforming

YTD gains remain extreme: Most Shorted +52%, Short-Biased +85%, Battleground +59%.

As the market turned, these high-beta factors reversed sharply.

A historic run is finally cooling: the Most Shorted U.S. equity basket is still crushing the average stock, but its October peak now looks like the blow-off top.

As highlighted in our note September 27th, the defining feature of 2025 has been the persistence of high–short-interest factor outperformance. Short-interest-heavy names led returns for most of the year, with squeezes and positioning stress repeatedly overshadowing fundamentals. But the Most Shorted basket — after peaking at +70% on October 15th — has now pulled back to about +52%, still outperforming the average U.S. equity by 38% but the gap is closing.

The largest moves occurred where long and short capital were most directly opposing each other — especially within S3 Partners’ Active Long-to-Short and Battleground risk frameworks. Battleground names, defined by balanced active long interest and short interest tracked by S3, reacted sharply to small sentiment shifts, while Short-Biased names, where short interest exceeds active long interest, saw the most pronounced squeezes and liquidity-driven spikes.

These dynamics highlight a broader rise in crowding and contested positioning. With both cohorts expanding since 2020, the market has become more sensitive to abrupt sentiment and liquidity shifts. As the trade unwinds, monitoring S3 Active Long-to-Short ratios, concentration, and squeeze risk remains essential for spotting the earliest signs of a turn in risk appetite.

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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.