Short interest in Apple soars

Short interest in Apple soars
Based on statistics from NASDAQ, investors became extremely bearish on Apple's stock over the last few weeks with a peak in negative sentiment reached around the end of last month. Apple's short interest had been rising, not surprisingly coinciding with the sharp decline in the company's stock. Short interest represents the number of shares of Apple that have been sold short, a bearish strategy that we will explain. Right now, let's just point out that negative sentiment about a company rises with the short interest.

You know how stock market investors like to buy low and sell high? Selling short is the opposite. You borrow shares from your broker and then sell them. With this strategy, you want the stock to drop because it allows you to buy back the shares you've borrowed at a lower price. And yes, the shares do need to be bought back eventually. In fact, there is a famous saying relating to shorting. "He who sells what isn't his'n, must buy it back or go to prison." Hey, we only report these things, we don't make them up! Short interest in Apple rose from 8 million shares in April 2012 to 20 million by April 2013. During the last two weeks of April, when the shares fell sharply to $385, the short interest doubled to 41.6 million shares. Now, with the stock back up to the $445 area, the short interest has declined to 26 million shares. This means that the recent bounce off the low has been due to shorts covering their position which is not considered having the stock in the hands of strong buyers.

It might be counter-intuitive but a large short interest often is the sign of a major bottom in a stock. It means that everyone pessimistic about the stock has already sold Apple shares short. Also, since the majority of people do the wrong thing in the market, short interest is often a contrary indicator. And finally, all of those shares sold short will have to be bought back eventually. The reason why a short seller might be forced to "cover" his position has to do with margin calls. If you short a stock and it starts rising, you might have to put up more money or be forced to close out the trade.

The bottom line here is that with all of the recent bearishness over Apple, the short interest is saying that this pessimism might have gone a bit overboard. Is the Apple iWatch getting ready to turn around the company's fortunes, and those of its investors? 

source: NASDAQ via Fortune, TUAW

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19 Comments

1. PapaSmurf

Posts: 10457; Member since: May 14, 2012

Wow. I would be a little scared. Sure they're still taking home the most profits, but the decline of sales on their products and lower stock value is something that shouldn't be overlooked at in Cupertino.

4. stealthd unregistered

Well their sales haven't really declined, sales GROWTH has declined, but they've still continued to show year over year growth with each new iPhone. It's true though, they can't ride their wave of success forever.

7. darkkjedii

Posts: 31529; Member since: Feb 05, 2011

Well said. Some PA users need a detailed explanation.

19. QWIKSTRIKE

Posts: 1461; Member since: Mar 09, 2010

Looks like a potential major short squeeze setup to me. If it happens shorts will get their ass's handed to them. be ware when every one is overly bearish. nothing foes straight down!

8. darkkjedii

Posts: 31529; Member since: Feb 05, 2011

I think apples paying attention Smurf. Maybe they needed a shock to get them up and running. BTW have you noticed how secretive apples been this year. 2010 iPhone 4 left in a bar, announced by gizmodo's Jason Chen before Jobs can announce it. 2011 4S left in a bar, and tracked to a guys home, apple has place searched only to come up empty handed. 2012 iPhone 5 leaks months before official announcement, when its announced it looks just like the leaks. 2013 absolutely nothing. That makes me think they got something big. Guess Cook was rite, when he said we're doubling down on security.

14. ncarlosmiguel

Posts: 206; Member since: May 14, 2013

Or maybe people are just simply uninterested. That's why no rumors this year.

15. darkkjedii

Posts: 31529; Member since: Feb 05, 2011

That's stupid. People being uninterested would produce more rumors dude. And there's plenty of rumors, my post said nothing about rumors. L E A K S

2. HDShatter

Posts: 1021; Member since: Jan 17, 2013

So whens their next event so their stock falls another 100 points.

11. TROLL

Posts: 4851; Member since: Apr 13, 2012

Hoping wishing in couple of months! ®

12. darkkjedii

Posts: 31529; Member since: Feb 05, 2011

Too bad it's not gonna happen. In a couple months it'll be a 100 points higher.

17. TROLL

Posts: 4851; Member since: Apr 13, 2012

Hey Dark, how's it going...! Extreme hate for Apple, but love the iPhone4,5™ ®

3. _Bone_

Posts: 2155; Member since: Oct 29, 2012

Apple's low stock was an excellent opportunity for he company to buy own shares cheap and gain influence at the stockholders board. While $700 wasn't realistic, so wasn't $385 cause Apple still sells more products every quarter than in the previous, just market share and profit margins stopped rising. Realistic is around $550, and APPL is heading there.

5. darkkjedii

Posts: 31529; Member since: Feb 05, 2011

Is this _Bone_? Not only was this post extremely intelligent, but it's not anti apple. Once again, is this _Bone_? +1

9. -box-

Posts: 3991; Member since: Jan 04, 2012

Eh, I wouldn't really value them over $200, with google not much higher. Too many companies are overvalued, whether for economic reasons (positive or negative) or general foolishness remains to be seen.

6. InspectorGadget80 unregistered

Can we please stop talking bout STOCKS and get back too mobile news? and especially stop talkin bout Apple stocks

13. stealthd unregistered

They gauge how valuable these stories are by how many people visit it. You didn't just click on it, you commented, that counts for at least 2 visits. If you really don't like these articles and want them to go away, ignoring them is the best solution.

16. darkkjedii

Posts: 31529; Member since: Feb 05, 2011

You could always deactivate your acct and visit another site...please

18. TROLL

Posts: 4851; Member since: Apr 13, 2012

No he won't, cause we are all regular PhoneArena posters and visitors, who comes for fun, laugh, hate, like, love, praise, Troll, bash, insult, frustrations, anger, humiliate and what's next Dark...? ®

10. squallz506

Posts: 1075; Member since: Oct 19, 2011

Even though I'm diversified, I shorted all of my apple stock and purchased Eli Lilly over 3 months ago.

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