How You Can Profit From Short Sellers:
Last week, I wrote a piece that discussed the concept of short covering- here. As a quick review, short sellers are people who profit when stocks fall and short covering occurs when the short sellers exit their positions. In order to exit their short positions, they must buy back the stock and that brings in new buyers to the market.
The article was very well received and many of you asked how you can directly benefit from this concept. One way is be long stocks (own stocks) as long as this very powerful bull market continues. Another way is to look to buy stocks that have very high short interest.
Nasdaq.com Defines Short Interest As:
“Short selling is the selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short selling is a legitimate trading strategy. Typically, a short sale involves the sale of a security at the current price which is settled with shares lent to the short seller by a third party. The seller makes the short sale on the assumption that the price of the security will go down. If this occurs, the short seller will purchase shares to lock in a profit, extinguish the short position and replace the shares previously borrowed. Of course, if the stock rises in price, the short seller may elect to close out the position through a purchase, and absorb the resulting loss. Firms are required to report their short positions as of settlement on the 15th of each month. A compilation is published eight business days after.”
Many times, when a stock refuses to fall, it shoots higher because short sellers have to cover their positions and are forced to buy the stock to exit their short position. A good way to look for nice unexpected gains in the market are to buy stocks that are going up and have a high short interest.
Here is a list of some of the most shorted stocks in the market right now (high short interest) that are trading over $5/share & have average volume above 500,000/day:
- JAKKS PACIFIC (JAKK)
- 3D Systems Corp (DDD)
- Ubiquiti Networks UBNT
- Theravance Inc (THRX)
- Santander Consumer USA Holdings (SC)
- Penn Virginia Corp. (PVA)
- Beazer Homes Inc (BZH)
- Opko Health Inc. (OPK)
- Conversant Inc (CNVR)
- Hawaiian Electric Industries (HE)
- Keryx Biopharmaceuticals (KERX)
- The ADT Corp (ADT)