Top 10 Most Shorted Stocks List For October 2022

Key Takeaways

• Short selling an asset is betting against its future appreciation (and dividends). “Shorting” a stock carries a high potential for gains as well as losses.
• When the stock price of a shorted stock rises, a short squeeze can ensue, forcing the price to rise even more dramatically.
• While high short interest isn’t a guarantee of a short squeeze, it can predict one in some cases.
• See list of most shorted stocks below.

With the rise of meme stock trading during the pandemic, some retail investors now make it a point to know the most shorted stocks. By taking a position in one of these stocks, they hope to squeeze the short seller and cause a massive run for the stock. It’s a very risky move, but if done correctly, it can pay off in gains of 100% or more in a short period. If this sounds like something that interests you, here is a listing of the most shorted stocks for October 2022.

What Does it mean to short a stock?

When you short a stock, you’re betting the stock price will go down. To do this, you borrow shares of the stock from somebody else, sell them, and hope to repurchase them at a lower price so you can return the shares to the person you initially borrowed them from. They get their shares back, and you pocket the difference. Shorting is risky because there is no limit to how high the stock price can go, and you can lose a lot of money if it goes up instead of down.

For example, let’s look at a classic short stock, AMC Theaters. Before this stock became popular with the meme crowd, it was trading at around $5 per share. Hedge fund managers believed the stock was overvalued for a variety of reasons. This included a combination of factors – no one going to movie theaters during the pandemic, new movies being released on streaming platforms the same day as their theatrical release, and a more enjoyable movie-watching experience at home.

As a result, these hedge fund managers borrowed shares from other investors who owned the stock. If the stock price dropped to $3, they would sell these borrowed funds back to the owner, pay the owner a small amount of interest, and profit the difference—in this case, $2 per share.

This trading strategy blew up in many hedge funds’ faces when Redditors from Wall Street Bets and other retail investors decided to start buying shares of AMC.

Because the stock price was rising and not falling, the hedge funds had to borrow shares for longer than they liked and pay interest during this time. As the stock price rose higher, a short squeeze occurred.

What is a short squeeze?

A short squeeze happens when the stock price rises significantly, and the short seller has to buy back shares at a higher price. Because stock prices can go infinitely higher and the sellers must buy them at the market price to pay back the shares of stock they don’t own, there is no maximum limit on the loss a short seller can realize.

Let’s go back to the AMC example to illustrate this. Let’s say the short seller borrowed AMC shares at $5 per share, and the stock rallied to $25 per share. They now must either hold out and hope the stock price comes back down quickly, or they need to buy shares at this level to stop losing additional money. Assuming they buy at $25, they return the borrowed shares for $5 and realize a loss of $20 per share. Multiply this by the number of shares shorted, and the loss increases significantly.

If the short seller doesn’t buy shares to cover, they could get hit with a margin call, which forces them to purchase shares or add funds to their account to cover the losses.

How to Find Short Squeeze Stocks

There are a few ways to find stocks that may be experiencing or about to experience a short squeeze.

The first way is to look for stocks with high short interest as a percentage of float. This means that many shares have been sold short relative to the number of shares available for trading.

Another way is to look at the short interest for stocks. You can find this information wherever you get stock quotes from. For example, if you use Yahoo Finance, click on Screeners on the home page and scroll down for a link to the most shorted stocks. Additionally, if you are looking at a specific stock, you can click on the Statistics tab for the short ratio.

For an ideal short squeeze stock candidate, you want to ensure the number of shares short is more than five times the average daily trading volume for the stock. Also, the short shares should be at least 10% of the float. Finally, the number of shares being shorted should be increasing, not decreasing.

Instead of monitoring the markets for these opportunities, many investors now look to artificial intelligence to do the legwork for them. Q.ai actually offers a Short Squeeze Investment Kit. The artificial intelligence scours the markets in real time pulling in all manner of investment data, making this a relatively low risk way to invest in a number of short squeezes all at the same time.

Most Shorted Stocks October 2022

Now that you understand shorting a stock and why investors choose this trading strategy, let’s look at the most shorted stocks this month.

1. Bed Bath and Beyond

This specialty retailer has the highest short interest at just over 39%. It has been a favorite of the Wall Street Bets crowd since the summer, and the stock price surged to $30. Currently, it is trading at roughly $6 per share.

2. Beyond Meat

Beyond Meat is a food processing company that offers vegan alternatives to hamburgers, chicken, and sausage. The short interest stands at 37%. A year ago, the stock was trading at $100 per share. Currently, the stock price is $14.50.

3. Big Lots

In November 2021, this discount store traded at slightly more than $51 per share. Today, it is trading at $16.60—a 60% decline in value. It currently has a short interest of close to 37%.

4. Upstart Holdings

Upstart is a consumer lender that saw its stock price peak in October 2021 at $390. Currently, the stock is trading at $20.50 per share, a drop of over 90%. The short interest stands at 35%.

5. MicroStrategy

You might not think a software and programming stock trading at $219 per share would show up on a list about shorting a stock. But MicroStrategy’s stock price has fallen from $859 in November 2021. The short interest currently stands at 34%.

6. Heron Therapeutics

Heron Therapeutics has a short interest of 32% and is currently trading at $4 per share, down 60% in the past year. A major reason for the decline in value is lackluster sales of its new non-opioid painkiller.

7. Evgo

The electric vehicle revolution is here, and investors of Evgo, an electric charging company, have been on a wild ride of ups and downs over the past year. During this time, the stock has been up slightly more than 2%. But year to date, it is down 23%. Some investors don’t feel the company can build out its network fast enough, so the stock has a short interest of 31%.

8. Big 5 Sporting Goods

The sporting goods retailer has seen its stock price decline 46% this year, with short interest standing at 31%, as many traders don’t see a future for this company.

9. Carvana

Carvana is part of a new crop of used car outfits whose goal is to simplify the car-buying process. The problem for Carvana is the uptick in auto loan delinquencies, causing short interest to sit at 30%. A year ago, the stock was selling for $300 per share. Today, it is down over 90% to $21.60.

10. Nikola

Shares of this EV automaker peaked in June 2020 at $65.90. But then the news came out that the Securities and Exchange Commission was charging the founder with fraud. The stock plummeted to $3.50, and short interest increased. Today the short interest stands at close to 29%

Bottom Line

Short selling is a high-risk trading strategy that can result in significant losses if the stock price rallies. But traders can make huge profits if the stock price continues to fall. As with any investment, be sure to do your research before considering any of these stocks for your portfolio.

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