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Feb 13, 2017

S3 BLACKLIGHT: Apple Short Interest is Declining but Losses are Piling Up

Goldman Sachs’ raising of Apple Inc’s (AAPL US) target price 13% to $150 is stoking the stock’s recent rally to higher levels with Apple’s stock price up another 1.20% to $133.71 - a year to date increase of 15.46%. Apple short sellers, who have been taking a beating this year, are down over $71 million on intraday mark to market P\L today.

Apple short interest had been increasing in tandem with its stock price from 2009 to 2014 as a beta hedge for portfolio risk management, a hedge to derivative securities and an outright short wager but has been decreasing in the last three years as Apple continued to hit historical stock price highs.

2016 Apple short interest averaged $6.04 billion, trading in a range between $4.4 billion to $6.9 billion except for a spike in late march to $10 billion when it hit a two year low of $90.34. Apple stock borrows are at general collateral levels, the cheapest borrow rate for the easiest to borrow stocks, and total 2016 financing costs were $20.3 million. Total 2016 mark to market P\L, net of financing, was a loss of $432 million, or -7.15%, as Apple’s stock price increased 9.93% for the year.

Even though Apple’s short interest has decreased this year, portfolio managers have incurred a much greater loss on their $5.6 billion outright short or hedging position. Short financing cost has totaled just over $2.1 million in the first six weeks of 2017 but mark to market P\L is a $794.5 million loss. Total mark to market P\L net of financing is a loss of $796.6 million, or -14.26% for year to date 2017.

With Apple’s stock price increasing steadily over the last two years most of the existing short interest is market related (alpha) portfolio hedges or hedges for derivative securities (indexes, options, bonds and ETF’s). Most of Apple’s outright short betters have been squeezed out over the last several years. With core Apple short interest in the $4.5 billion to $7 billion range, we would need to see short interest trend over $7 billion to say that there are an appreciable amount of short sellers betting on Apple’s share price to fall.   

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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