Nearly 14 million shares of the Las Cruces, New Mexico-based company have been sold short in the past 30 days, meaning the stock’s surge on Monday after a test theft has causes short sellers to suffer millions of dollars in losses, data compiled by financial analysis firm S3 Partner Show. With short-term interest standing at $ 949 million, more than a fifth of stocks available for trading are sold short, which could prompt bears to hedge their bets, S3 Partners said.
This increase in short selling has already resulted in bear’s mark-to-market losses of $ 427 million this year – with $ 366 million of those losses occurring in the past eight days, wrote managing director Ihor Dusaniwsky. predictive analytics at S3 Partners. in a report Monday. With short bets against the company increasingly crowded and as losses increase, the company appears to be ripe for short squeeze, he wrote.
A short squeeze occurs when a stock posts a large gain, forcing short sellers to hedge their positions by buying stocks, which in turn pushes the stock even higher.
Virgin Galactic climbed 28% in Monday trading, the highest level on record, to the highest level since April 9 after the company made its first test flight into space in more than two years. Michael Ciarmoli, analyst at Truist Securities, called the event a “major milestone”.
With Virgin Galactic “on the rise in stock prices, we should at least expect this surge in short selling to stop abruptly and more likely to be replaced by short hedging,” Dusaniwsky wrote. He also felt that with the accumulation of losses, it became more and more likely that new shorts would capitulate and reduce their positions.
Read more: Virgin Galactic jumps on successful test flight in space
(The updates share the movement in the fifth paragraph.)