Short Sellers Face Losses As Stock Market Rallies
The start of 2025 has been challenging for short sellers who bet against stock prices. According to data from S3 Partners, these investors have lost $73 billion in US and Canadian markets since the year began.
"The rally in the market was not kind to short sellers," said Ihor Dusaniwsky, head of predictive analyst at S3 Partners.
The S&P 500 (^GSPC) has surged approximately 4% this year, and several companies within the index have experienced significant gains, partly due to short squeezes. Super Micro Computer (SMCI), the index's top performer, has climbed over 110% since the start of 2025, resulting in losses of more than $2.2 billion for short sellers.
Short squeezes occur when a substantial number of investors bet against a stock's decline. However, if the stock price rises instead, these traders are compelled to purchase shares to cover their positions, further driving up the share price.
"Short sellers are guaranteed future buyers ... when shorts are getting squeezed, these can become forced liquidations," said JC Parets, chief markets strategist at All Star Charts.
This year, the market has witnessed numerous forced liquidations. S3 Partners utilizes a model to determine a stock's "squeezability," with a score above 70 indicating vulnerability to a short squeeze and a score of 90 signifying extreme susceptibility. Super Micro Computer currently has a score of 100.
Other stocks that have experienced significant gains due to short squeezes this year include Hims & Hers Health (HIMS), Oklo (OKLO), and BigBear.ai (BBAI), with all three stocks having rallied over 80%.
"As more stocks, more sectors and more countries around the world start to participate in this bull market, any of the short sellers who overstayed their welcome are getting blown up," said Parets. "This is a classic characteristic of healthy bull market environments."