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Most Shorted Stocks on the ASX
What does it mean to “short” a stock? The term has become such a buzzword in the last few years. But it has to have a set definition, right?
Well, you might be frustrated to learn that shorting has a few different meanings. Though it might be more accurate to say that it is done in a few different ways.
Today, we are here to talk about shorting on the ASX (perhaps better known as the Australian Securities Exchange).
Shorting is an interesting financial practice because the victims of it are generally relegated to the more well-moneyed elements of society.
Major corporations might find ways to extract more value from their workers in order to cover for the losses they suffer due to shorts, but they are the first to feel the pain no matter what.
This makes them worth studying if only to understand what it is they provide that is so worth the damage they do.
But we are getting ahead of ourselves. Let’s start by talking about the definition of shorts.
Table of Contents:
- What Does it Mean to Short a Stock
- What are Loaned Shares in Relation to Shorts
- The Most Shorted Stocks on the ASX
- How are Shorts Manipulated
- What are Naked Shorts
What Does it Mean to Short a Stock?
“Shorting” is the verb for “taking a short position”. A short position is when you buy stocks with the intention of selling them in the short term. Many people will instinctively think of day trading—the practice of buying and selling a stock on the same day for a small profit. There is definitely overlap.
But the thing to understand about shorting stocks is that it is a very basic practice. It is so basic that while it requires a definition, there will usually be details to how a stock is shorted that take the shorting process further and further away from that original definition.
The most important thing to know is that shorting stocks, by itself, is incredibly normal.
So, what is not as normal?
What are Loaned Shares in Relation to Shorts?
One of the most common ways that a stock is shorted is by loaned shares. Think of it like this: You know, for whatever reason, that a company is going to take a hit to its stock price in the coming months.
Maybe you are conspiring to create that situation, maybe you have insider knowledge, maybe you’re guessing. The important thing is that you have foreknowledge that the current price is high, and the future price will be low. How do you make money off of a stock losing value?
It is a multi-step process.
- Borrow a stock from a broker.
- Sell that stock.
- Buy the stock you borrowed from the broker.
This is a massive oversimplification, but it gives us something to talk about. What is going on here?
Well, in a short sell, you are essentially betting that a stock will go down in value. When you borrow a stock, you control where that stock goes even though you do not own it. That means you can sell the stock and keep the money you make off of it until the time outlined by the borrowing contract.
Then, you use the money you got from selling the stock to buy the stock you borrowed from the broker. Basically, you are paying to upgrade from a rental of the stock to a purchase of the stock. But because the price of the stock dropped since you borrowed it, you pay less money than you made.
This is a risky game, and there is always the possibility that the stock goes up rather than down. In that case, you will have to pay out of your own pocket to cover the cost of buying the borrowed stock.
It does not end there. But now that you know how shorts can be manipulated, let’s talk about stocks that are being shorted on the ASX right this very moment.
The Most Shorted Stocks on the ASX ➡️
We will format this with the name of the company, their call code in parentheses, and then the percentage of outstanding shares that are being shorted. It is important to note that, except in the case of naked shorts, the size of a company that is held in a short position has to be disclosed.
1. Flight Centre Travel Group (FLT) – 17.23% Shorted
This is a travel agency. These kinds of businesses have not been doing great since the pandemic, as the whole travel industry is still recovering. Even worse, the war in Ukraine has made travel to Europe less attractive to the common consumer. This goes to show how much impact the consumer has.
2. Betmakers Technology Group (BET) – 13.05% Shorted
Betmakers works in gambling technology. That means the machines that process the gambling, the databases that record the results, and just about every other attendant technology you can think of.
Their percentage shorted is significantly better than Flight Centres’—mostly because Flight Centre’s is significantly worse. Gambling on horse races is doing alright, but it is not a growth industry, leaving companies like Betmakers looking for an innovation to save them from being shorted to death.
3. Nanosonics (NAN) – 12.31% Shorted
Most people who know of Nanosonics are generally surprised that it has such a large short position placed against it. It is a medical technology company that works in the distribution of ultrasonic disinfectant devices, among other things. They are rather large too, with offices in the US and Australia.
Most analysts agree that they are not being shorted out of spite or in an attempt to destroy the company. They are being shorted because they have the capital to endure it. This is something worth noting about shorts: Most companies are worth more to companies alive than dead.
4. EML Payments (EML) – 10.12% Shorted
EML Payments is a payment logistics company. A lot of work goes into making sure swiping your card to pay for gas actually does something, and EML payments is one source of that work. Like many companies, its shorting is a product of its stagnancy. They do more maintenance than innovation now.
That is a trend you will see repeated a lot: The kinds of investors that deal in shorts usually deal in long-term investments. That means that if they think a company is about to go under, or in any other way deal in less-than-long-term investments (read: short investments), they will short it to get value from it.
5. Kogan.com (KGN) – 9.79% Shorted
Online shopping has become at the same time heavily competitive, and not competitive at all. Most companies are having to compete with the international giants: Namely, Alibaba and Amazon.
That puts Kogan in an awkward spot where it has to weather storm after storm of uncertainty. It is being shorted now, but if it survives this short then it will likely be far more profitable for it.
6. Webjet (WEB) – 9.48% Shorted
Another travel agency. This one is a penny stock, meaning its share price tends towards being less than $5 in value. These are funny stocks because they so regularly tend to build up a big short position due to your average investor being able to short them. That 9.48% shortage might be all normal people.
7. Polynovo (PNV) – 9.01% Shorted
A company that deals in skin grafts and skin substitutions. It is important to understand that this is essentially a medical technology company. They do not deal in skin care, but in medical procedures related to the skin.
We mentioned earlier that some companies get shorted not because they are targeted for destruction or anything so dramatic as that, but because investors know the company will survive it. The rule of thumb is that most medical technology companies work that way.
Although at the same time, know that the market does not care about the fact that medical technology is good for the human race. Polynovo could be producing immortality serum and it would still be shorted.
8. Appen (APX) – 8.88% Shorted
This one is a bit of an oddball. In a list full of travel agencies, medical technology companies, and gambling firms, Appen is a data company that deals in machine learning solutions.
The machine learning industry is undergoing a bigger boom than you would expect. Every ad agency with a stake in the internet wants smarter, better ads. Companies like Appen deliver.
A short position of this size will not bring Appen to the ground. When you start getting further and further away from a 10% short position, you start to delve into layers of uncertainty. Will the stock price really go down? If everyone was perfectly certain they would be taking out a much larger position.
9. AMA Group (AMA) – 8.79% Shorted
An automotive aftermarket accessory and maintenance company. They are coming out of a rocky period right now, and while things are looking up in the long term, they are recovering from some residual short selling abuse on their stock price.
Still, their stock price went from $.56 to $.21 over the last year. That is not that bad for a stock worth less than $1. In fact, a short position of less than 9% when their stock is that cheap probably means it is as much leftover from six months ago as it is people looking to catch a sharp decline now.
10. Zip Co. (ZIP) – 8.75% Shorted
Zip Co. is a financial technology company. They mostly deal in digital transactions and have recently expanded by buying a US company. They are quick to let everyone know that they are looking to expand even more, first to the US and then to Europe and the UK.
This is quite ambitious for a company whose stock regularly trades for less than a dollar. While they do not look like they are doing poorly, you certainly can’t blame people for betting against them. If a mouse told you it was going to climb a mountain, you probably wouldn’t expect it to come back with pictures.
Now that you know what shorts are and what stocks are being shorted, let’s talk about the different ways to manipulate shorts to make a profit.
How are Shorts Manipulated?
So, shorting a stock is when you take a short position. But what if you could make a short position?
Imagine that you have $100. There is a company worth $50. You have enough money to buy the company outright. But that might not be the most profitable option available to you.
You could also buy most of the company. That interest in the company would translate to a rise in its stock price. Then, once interested parties buy more and more of the stock, you sell it.
This is how normal shorting can be abused. It does not take much thinking to notice that some companies own many times more capital than smaller companies. That means they can take possession of a majority of a company’s shares rather easily and do whatever they want with them.
What are Naked Shorts? 👀️
This is where things get really troubling for the economy. So, you can borrow a stock and sell it even though you do not own it. If you can do that much manoeuvring, then why not sell that same borrowed stock multiple times? Once the price falls, you can use your profits to deliver multiple stocks, right?
This is actually something that happens quite frequently. It is highly illegal in literally every country that has a stock exchange, but it is hard to catch a company doing it. The real problem with naked shorts is that they create value in the economy that does not actually exist.
Non-existent value can eventually be audited and discovered to be fake. When that happens, it can lead to a chain reaction that uncovers even more non-existent value. And if some value is discovered to be non-existent, it will also result in existing value being discredited.
This is how the 2008 financial collapse happened. So, as appealing as shorts are, be careful with them. Even following the most popular trends, you are always gambling with them.
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