Hedge funds employ various strategies to generate profits in the financial markets, and one of the most common approaches is taking short positions in stocks.
Short selling is a trading strategy that allows investors to profit from the declining prices of stocks. The strategy can be used with put and call options or traditionally in the form of borrowing shares from a broker and directly selling them on market with the intention to profit by repurchasing them at a lower price. However, it is also a high-risk strategy that can result in significant losses if the market moves against the short seller.
When a hedge fund takes a net short position, it means they have a greater stake in the stock's decline than its rise. This could involve selling borrowed shares, buying put options, or a combination of strategies.
Today, we will examine the 10 stocks currently with the largest net short exposure held by institutions.
The Big Shorts page on the Fintel quant platform displays the largest short positions by hedge funds in SEC filings. The list is compiled from 13F and NPORT filings to determine the value of short positions for each stock.
Leading the pack is tech titan Apple (US:AAPL), which finds itself on the receiving end of a significant short position held by Cerity Partners worth $1.72 billion. This position is exclusively put options, a bet on AAPL stock declining. The Nasdaq-traded shares have gained almost 48% year to date, closing on Tuesday at $185.01 a piece.
Betting against Activision Blizzard (US:ATVI), a prominent player in the gaming industry, is Japan's largest investment bank, Nomura which holds a significant, $757.16 million net short position in ATVI stock. This considerable short position is primarily comprised of put options, however, it's tempered by some offsetting call option exposure and a $67.5 million long position demonstrating Nomura's nuanced strategy toward the stock. The shares are up 7.9% in the last six months as Microsoft (US:MSFT) seeks global regulators' approval for the $68.7 billion acquisition of Activision Blizzard, in what would be the gaming industry's biggest-ever deal.
Susquehanna International Group has a $675.53 million net short position against online travel company Booking Holdings (US:BKNG). Susquehanna's net short exposure primarily comprises both put and call options as well as a direct position in BKNG stock. The investor could be using the put options to capitalize on a potential fall in the stock price in the back half of 2023, considering BKNG shares have traded almost 30% higher this year against a backdrop of incoming macroeconomic weakness.
Deer Park Road has a $616.53 million net short position in food delivery platform DoorDash (US:DASH), consisting solely of put option exposure in the security. NYSE-traded DASH shares have mounted a 51% rally over 2023 but are down more than 70% from highs reached in 2021 during the height of the pandemic.
Charter Communications (US:CHTR), a leading broadband and cable telecommunications company, features fifth on our list this month with Citigroup holding a $573.27 million net short position in CHTR stock. Citigroup's net short exposure consists primarily of put options worth $576.97 million, and a small call option and direct long positions, indicating a mixed approach to the investment. The shares have stumbled in the last month, down 2.8% as of Tuesday's market close.
Booking Holdings (US:BKNG) makes a second appearance on the list, this time with a net short position held by Citadel Advisors. Thie fund's net short exposure of $562.91 million is a complex mix of substantial put value, tempered by significant call value and long value.
We've got another appearance by Activision Blizzard (US:ATVI), this time in the seventh position. Pentwater Capital Management holds a net short position on the stock valued at $555.18 million. This position is a blend of put options, offset by smaller portions of call options and long direct shares.
Bank of America (US:BAC), a major banking and financial services player, faces a net short position of $531.33 million held by Jane Street Group, The position, comprised of a substantial put option position worth $833.32 million, is partially offset by a combination of $194.17 million of call options and $107.80 million long in stock.
BAC stock is down almost 12% in the last six months, which compares with a 18.7% decline in the Invesco KBW Bank ETF (US:KBW), which holds the lender's shares among its top five allocations (8.87%) in the 22-stock exchange-traded fund.
PHC Holdings (JP:6523), a healthcare company specializing in medical and health products, mirrors Bank of America's net short position also held by Jane Street, exhibiting a similar financial strategy as it used with BAC.
Rounding off the list is NVIDIA Corp (US:NVDA), a prominent player in the semiconductor and software design industry. Walleye Trading holds a net short position of $526.43 million, mostly attributed to put positions, with significant offsetting call positions.
In essence, each of these short positions provides a fascinating look into the world of hedge fund strategies. Despite being primarily based on put value, the intricacies of these positions reflect how complex and multi-layered financial markets can be.
This story originally appeared on Fintel.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
