Tech stocks: FAANG short sellers made $5.5 billion during October

Reed Hastings, CEO of
Netflix
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• Short sellers betting against FAANG stocks have made
  more than $5 billion as tech-stock valuations have plunged this
  month.
• The tech-heavy Nasdaq Composite has tumbled 12%
  in October.
• Short sellers, after making billions of dollars,
  could soon start to buy back FAANG stocks, said
  S3 Partners, a financial-analytics firm.
• Watch Facebook,
  Apple,
  Amazon,
  Netflix,
  and Google
  trade live.

Betting against some of this year’s best-performing tech stocks —
the FAANG basket — has been a money-making machine during the
brutal tech sell-off during October.

Short sellers of FAANG stocks, or those investors betting against
these shares, have seen $5.52 billion in mark-to-market profits
since the beginning of the month, a return of 17.14% on an
average short position of $32.2 billion, according to data
from S3
Partners, a financial-analytics firm.

Since that time, the tech-heavy Nasdaq index has plunged
12%, in large part because of the FAANG stocks — Facebook
(-13%)
, Apple
(-6%), Amazon
(-24%), Netflix
(-26%), and Google
(-15%). 

But traders aren’t necessarily betting against names
outright, some are doing it for hedging purposes,
said 
Ihor Dusaniwsky, S3’s managing director of
predictive analytics.

“The five FAANG stocks are all in the top ten most shorted
U.S. equities which indicates that there are more reasons to
short these names besides pure Alpha generation on the short side
of a portfolio,” Dusaniwsky said on Monday.

“
While a portion of the short non-Alpha
trading can be attributed to option and future hedging, most of
the non-Alpha trading is related to portfolio Beta
hedging.”

Dusaniwsky added that these short sellers could start to
buy back FAANG stocks to cover their positions. 

“When tech rallies again, we will probably see short
covering of a larger percentage of the October FAANG short
selling activity as the notional dollar short interest
increases,” he said.

“These buy to covers will act as accelerants to any FAANG’s
upward price movements, October’s significant increase in shares
shorted will increase the potential for some volatile swings to
the upside.” 

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