Applied Optoelectronics Inc. (AAOI)
Moving up to the top pick from the number two slot last week, Applied Optoelectronics, the US-based fiber-optic networking provider, has seen short interest volume of over 90 percent of the available shares since the start of August, closing last week at over 95 percent. This level of demand not only pushes up borrowing costs, but also risks a painful short squeeze should the share price start to rise. However, the opposite happened last week: As short interest volume grew by a further 2 percent, the share price collapsed $11.16 or 19 percent to close the week at $47.01, the lowest price since May and a long way from the August peak of over $103. The drop followed the company announcing estimated third quarter revenues and profits below analysts’ expectations, leading to further downgrades and lowering of target prices. The short sellers, who had been building substantial positions since March are paying high borrowing fees, but chalking up strong gains along the way.
1. Snap Inc. (SNAP) – Retaining the number one slot this week, investors in Snap have seen two new reports on the company that have broken the trend. Two analyst reports were published in the last week that were positive towards Snap, potentially the first since the company IPO. Strength in its key teenage market was cited as a strong positive for the company, especially when combined with the relatively low impact its competitors appear to be making in this space. The reports helped the shares gain some ground over the past week, rising $1.71 or 12 percent to close the week at $16.50. Over the same period, short interest grew by some 6 percent, but as a proportion of the shares available, it fell, albeit by less than 1 percent, suggesting that new supply was coming to the market. Despite the positive news, over 93 percent of the shares available are being borrowed, suggesting that the negative sentiment remains.
2. MannKind Corp. (MNKD) – MannKind, the US biotechnology firm, is promoted to the number two slot this week, up two places, as the shares continue their steep rise. Last week saw the shares rise from $5.03 to $6.71 by midweek, a rise of some 33 percent or $1.68. However, these gains had been pared back to just $0.25 or 5 percent by the end of the week, as the company took advantage of the rising share price to make a direct stock offering at a discount to the market. Short sellers added just 1 percent to their open positions by volume, but as a percentage of the available supply, short interest fell by more than 8 percent as new supply became available, potentially attracted by the huge borrowing fees being paid by borrowers, rather than necessarily new buying in the market. With over 70 percent of the available shares being borrowed, supply is not tight enough to cause a short squeeze, but the negative sentiment levels remain significant.
3. Flexion Therapeutics Inc. (FLXN) – Flexion, another US-based specialist pharmaceutical company, makes its debut this week as short interest rises steeply. Over the past 12 months, short interest has risen from a low level of around 20 percent in May, before beginning its ascent to hit 100 percent utilization by the latter part of July. Since then, as new supply became available, further borrowing was transacted. As at the end of last week, volume had risen 41 percent since August but utilization has moved down slightly to 95 percent as new supply became available. Over the same period, the share price has risen over $3 or 14 percent to close last week at $25.53. Short sellers have not been deterred, however, and appear to remain committed to their positions in the expectation of a downward correction.
4. Caesars Entertainment Corp. (CZR) – Having made its debut last week, Caesars, the casino and gaming company is back this week as short sellers run for cover. Having hit a new 12-month peak of $13.60 two weeks ago, the shares have fallen back slightly, closing last week at $12.15, down 11 percent. However, it wasn’t enough to stop the short sellers from closing their bets and potentially crystallizing their losses. Over the week, more than 66 percent of the open positions were closed, bringing utilization down, in line, from 91 percent to just 32 percent. Borrowing costs collapsed with the drop in demand following the trade that may well have hurt some short sellers who had been banking on a significant correction of the elevated share price.
5. Helios and Matheson Analytics Inc. (HMNY) – Making its debut this week is Helios & Matheson, a relatively unknown company, which announced its acquisition of MoviePass on September 15. The company shares leapt 950 percent on the news, from $3.67 to $38.58 in the middle of last week, before falling back to close the week at $20.40. Investors are expecting significant losses from the company over the next few years as it pays movie theatres more for their clients to access the venues than what it earns from them. The expectation is that the significant membership, which has risen from 20,000 to over 400,000 since the announcement, will become a lucrative client base in the future. Short sellers were quick to jump in, adding 56 percent to their positions as the share price jumped, closing 23 percent of their positions once the shares had fallen back to $20. While the last few weeks have seen significant short-term gains and losses for both long and short investors, this may well be a story that will run for a long time.