Short Selling Is Even More Dangerous Now
Betting against a company’s shares has always been financially perilous. The Reddit crowd’s call to arms increases those risks.
Holding the line.
Photographer: Gabby Jones/Bloomberg
Investors who seek to profit from a decline in a company’s share price have always taken greater financial risks than their long-only peers. Now, they face the additional danger of running afoul of Redditors piling into the market’s most-shorted stocks. For the sake of efficient capital markets, here’s hoping the short-selling crowd can hold its nerve.
The most direct casualty of the trading frenzy that propelled shares of GameStop Corp. and other stocks with big short positions to stratospheric levels in recent weeks was Melvin Capital Management LP, which lost about 53% in January on positions including a short of the video game retailer’s shares. But other short sellers have also been chastened.