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Short Sellers Are Willing Big In This Turbulent Market

Short Sellers

The last few weeks have been a rollercoaster ride for investors trying to bet on the stock markets as the second wave of coronavirus infections--and a potentially successful vaccine--threw a monkey wrench into the works. The prospects of an effective Covid-19 vaccine have suddenly changed the playbook for traders who were betting that it would take many more months, if not years, before certain pivotal sectors such as energy, transport and travel could fully recover from the effects of the pandemic.

Short sellers have certainly lost a bundle betting against certain corners of the stock market after Pfizer Inc. (NYSE:PFE) and its partner BioNTech (NASDAQ:BNTX) reported that their Covid-19 vaccine candidate, BNT162b2, has proved to be more than 90% effective in preventing infections of the deadly virus in early efficacy tests. 

The announcement practically blindsided everybody, with the beaten down small-cap-heavy Russell 2000 outperforming the tech-heavy Nasdaq Composite by the widest margin since in 34 years.

Yet, surprisingly, the shorts are still winning a lot more than they are losing in this turbulent market.

Losing shorts

As expected, traders who have been betting against sectors such as energy and travel that have been the hardest hit by the virus have found themselves on the losing end after the Pfizer vaccine. Not only has BNT162b2 been shown to be more than 90% effective in early efficacy tests but it could hit the markets in a matter of weeks.

Further, it’s the first mRNA vaccine that has proven to be successful, which could fasttrack the development of other similar vaccines. Indeed, Moderna Inc.’s (NASDAQ:MRNA) vaccine candidate, mRNA-1273, might not be far behind.

The deluge of a potential Covid-19 vaccine news has, quite naturally, lifted stocks of companies in sectors that have been hardest hit by the virus--and burned the shorts badly. Here are the 5 biggest short paper losses by traders since November 1:

  • Carnival Corporation (NYSE:CCL)--$520.6M
  • Expedia Group (NASDAQ:EXPE)--$382.5M
  • Booking Holdings (NASDAQ:BKNG)--$345.4M
  • Royal Carribean Group (NYSE:RCL)--$320.4B
  • Visa Inc. (NYSE:V)-- $317M

In total, the shorts have lost ~$2.9B in the 10 biggest losing bets.

Winning shorts

As pointed above, the shorts have been winning a lot more than they have been losing.

Here are the 5 biggest profits by the shorts over the same timeframe:

  • Zoom Video Communications (NASDAQ:ZM)--$999.7M
  • Wayfair Inc. (NYSE:W)--$936.8M
  • Tesla Inc. (NASDAQ:TSLA)--$460.2M
  • Teladoc Health (NYSE:TDOC)--$457.7M
  • Sea Ltd (NYSE:SE)--$449.4M

In total, the shorts have realized a ~$4.9B profit in the 10 biggest winning bets.

In other words, short-sellers have won a lot more than they have lost betting against this market.

Whether or not the shorts will continue winning remains to be seen. The S&P 500 Index is up 9.5% over the past two weeks, meaning the U.S stock market has generally been bullish after Biden was declared the 46th president of the United States. A lot of those gains have come in a few sectors: The Energy Select Sector Fund (XLE) is up 17.4% over the past five trading days while S&P Bank ETF (KBE) has gained 13.0%.

In contrast, the Technology Select Sector Fund (XLK) is down 0.6% over the timeframe while the retail and utility sectors have only managed gains of 1.7% and 2.9%, respectively, over similar timespans.

Going by current indications, Biden will ascend to the Oval Office come January 2021. His biggest pledge so far has been on Clean Energy, and that’s probably where the dollars will be flowing over the coming few years ceteris paribus.

By Alex Kimani for Safehaven.com 

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