Shorting stocks under the microscope

The local sharemarket’s most shorted stocks have seen large price fluctuations in recent days.

Picture: NCA NewsWire / Dylan Coker

The local sharemarket’s most shorted stocks have seen large price fluctuations in recent days as some members of online ASX trading communities attempt to replicate the “short squeeze” that saw Gamestop shares increase 1500 per cent in two weeks.

On Tuesday shares in the local market’s most shorted company – Webjet – saw its price jump 7.46 per cent to close at $5.04 per share.

With 14.57 per cent of its float in short positions according to Australian short tracking website Shortman, the travel booking website has become a subject of discussion on stock picking forums.

In the last week multiple users on popular ASX trading forum Hotcopper have discussed possibility of arranging a co-ordinated buying campaign to bring about a short squeeze – where a rising share price encourages short sellers to limit their losses by closing their positions – which in turn drives the share price even higher.

“WEB is a quality company and it should not be going down because of these stupid hedge funds shorting it,” one user wrote.

“Short squeeze on WEB is inevitable.

“After what happened in the USA -I am all in WEB – never been this bullish in my life … bring on the SQUEEZE.”

Other users on the forum have rubbished the call for a buying campaign, saying the short ratio of Australian companies isn’t high enough to create a Gamestop style reaction.

But other highly-shorted companies have seen fluctuations: Inghams Group, which has 8.6 per cent of its shares in short positions saw its share price jump by more than five per cent last Thursday to $3.32.

On Tuesday its shares closed up 0.61 per cent at $3.31.

Tassal Group, which has 12.36 per cent of its shares in short positions, also shot up last Thursday, with its shares gaining as much as six per cent during the day, ultimately closing up three per cent $3.49.

The shares have since lost ground on Tuesday closing at $3.35, down two per cent.

Some ASX stock trading forums have taken a hard line against users attempting to manufacture short squeeze scenarios, fearing regulators may target them for facilitating illegal market manipulation.

The moderators of Reddit’s ASX Bets forum – a local alternative to the more infamous Wall Street Bets Page – has said it will ban individuals who attempt to organise mass buying campaigns in the absence of “institutional fraud.”

“We do not allow organised market plays and actively delete and ban members who choose to post about these activities,” the moderating team said in a statement to the ‘Boomers’ in the media.

“ In event of a future scandal or indications of institutional fraud similar to what was uncovered overseas, the nature of this rule is unknown.”

Saxo Markets Australia Markets Strategist Eleanor Creagh said it was unlikely a Gamestop style squeeze could ever be mounted on the ASX.

“Whilst a squeeze can occur should the attacks prove successful, the short squeeze of epic proportions achieved by Redditors last week combined a set of circumstances unique to Gamestop – including the fact that more than 100% of the float had been shorted alongside the prolific buying of short dated call options,” she said.

“As such the end result is unlikely to be as newsworthy or calamitous, although the power of social trading communities is undeniable.

Mr Creagh said another explanation factor boosting the prices of shorted stocks over the last week was heightened hedge fund degrossing following the Gamestop fiasco.

“In general last week’s price action can be characterised as an unwind/de-grossing event, with funds reducing exposure on both the long and short side,” she said.