Apple's Short Interest Doubles

Short sellers have more than doubled their positions in shares of Apple Inc. (NASDAQ: AAPL) over the past 12 months. That despite the fact that the number of Apple shares outstanding has dropped by more than 200 million in roughly the same time frame.

In a reversal of the usual way things work, short sellers in general are now themselves the victims of a concerted attack by buyers of stocks like GameStop Corp. (NYSE: GME), for instance. Instead of shorts attacking a stock to drive the price down, buyers have pushed GameStop stock to a gain of more than 1,700% since the beginning of the year.

Short sellers, especially big ones like hedge funds, have been seriously battered by the run-up in share prices in stocks like GameStop and movie theater operator AMC Entertainment Holdings Inc. (NYSE: AMC), which has seen its share price rise by more than 800% so far in 2021. These shorts are forced to cover their bets by buying the stock (known as a short squeeze), thereby driving the share price even higher. When the dust settles, someone will be a lot poorer than they were a month ago.

Stocks with relatively few shares floated and high short interest (like GameStop) are perfect targets for a short squeeze. Short sellers in stocks like Apple, with more than 16.8 billion shares in its float (compared to fewer than 50 million floated GameStop shares), are somewhat insulated from the effects of a short squeeze.

As of the January 15 short interest settlement date, nearly 100 million shares of Apple shares were short, about 0.6% of the company’s total float and an increase of 10% from two weeks earlier. A year ago, nearly 42 million shares of Apple were short.

The rise in short interest is largely a bet that what goes up must come down eventually. The trick, for Apple short sellers (and Microsoft’s, too) is to time their sales so they can avoid being squeezed. That and not trying to make a big killing by shorting too many shares at too high a price.

Apple reported fiscal first-quarter results after markets closed Wednesday and simply blew the doors off already strong estimates. The stock pulled back after hours and traded down in Thursday’s premarket session as well. Partly that’s due to the current turmoil in the markets thanks to the attack on short sellers. However, there’s another reason why short interest in Apple may pick up.

In our look at Apple news this morning, we noted that Facebook CEO Mark Zuckerberg sees Apple as one of Facebook’s main competitors. That view stems from Apple’s intended rollout of new privacy tools that will make it harder for websites like Facebook to track users as they meander around the internet.

Facebook is unlikely to submit quietly to Apple’s privacy initiative. A protracted conflict between Apple and Facebook could be an opportunity for short sellers, and we could see short interest rise in both stocks.

Apple stock traded down 1.4% to $140.04 on Thursday morning, in a 52-week range of $53.15 to $145.09. The consensus price target is $136.17. The high price target on the stock is $175, implying a potential gain of around 23% from the most recent close.