Wall Street pros make big bet on an Apple share dive

Many of you believe that the only way to make money in the stock market is to buy a stock that you expect to go up in value and sell it when does go up. But there are several ways to profit from the decline in the price of a stock. There are put options you can buy, call options you could sell, or perhaps the easiest way to profit from a falling stock is to sell it short.

There are risks, of course. Selling short requires the investor to borrow shares from his brokerage firm and sell them without actually owning the stock. The goal is to buy back the shares at a lower price than the amount received when you borrowed the stock and sold it. Once you buy back the stock, the shares you borrowed are replaced and the transaction is over.

Astute investors scan through the list of the most widely shorted companies, but not for the reasons you might expect. Since shorted shares eventually need to be bought back, some investors love to be contrarians and buy those stocks being targeted heavily by short sellers. And right now, the stock with the largest valuation of shares sold short is...Apple. According to Dow Jones' Barron's magazine, Apple, beloved by professional fund managers and individual investors alike, has surpassed Tesla as the company with the largest valuation of shares sold short.

The information cited by Barron's came from S3 Partners, a firm that runs analytics for short sellers. In a report, S3's managing director Ihor Dusaniwsky noted that for 864 days, Tesla held the top sport in the short interest tables dating all the way back to April 2020. But there is a big difference between Tesla and Apple. While the value of Apple's shares that have been shorted now surpasses Tesla's number, the percentage of Apple's outstanding shares held by short sellers (known as the short interest ratio) is only .7% which is even below the average short interest ratio of 1.4% for the average stock listed in the S&P 500.

This happened because of Apple's incredibly high valuation of $2.45 trillion which dwarfs Tesla's market cap of $948 billion. So while Tesla's short interest ratio is still high at 2.2%, well above Apple's .7%, in terms of raw money bet on a declining stock, Apple is now number one.

Those tempted to bet on Apple's fall from grace might remember that the last time investors were ready to give up on Apple, it was January 3rd, 2019, and CEO Tim Cook had just lowered revenue estimates announcing that he expected fewer iPhone upgrades than initially forecast. Apple's shares fell 10% that day. But those tempted to sell the stock should have been buying instead,

One year later, the shares had more than doubled in value and after another year, they were up more than 3 and a half times since that 10% decline. So while there is more money bet on a decline of Apple than on any other U.S. traded company, those who own the stock shouldn't panic. But you should be prepared. Professional short sellers aren't part of the genteel side of retail investing that you often see in commercials.

Those who short stocks for a living hire publicists to send out exaggerated stories that would cause a company's stock to plummet if they were true. So don't be surprised to hear about weak iPhone 14 sales, more delays for the Mixed Reality headset, and other rumors that can't be easily verified but can still put a dent in Apple's stock price. This is the gang warfare part of the investing world and Apple now has ta bullseye painted on its back by these short sellers, seeking to profit from panic selling in the company's stock due to real or made-up concerns.