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Jun 12, 2017

S3 BLACKLIGHT: Apple’s Short Interest Quietly Tops $9 Billion

Mizuho Securities may have downgraded Apple Inc. (AAPL US) to a neutral from a buy and lowered its price target from $160/share to $150/share, but short sellers had already been building their short positions since the end of May with AAPL short interest topping $9 billion for the first time since May of last year. AAPL is now the third largest worldwide short behind Alibaba Group ADR (BABA US) with $16.7 billion of short interest and Tesla Inc. (TSLA US) with $10.5 billion.

AAPL short interest was $9.1 billion on Friday, down $560 million from its year-to-date high of $9.7 billion at the end of May, but up $3.2 billion or 54% for the year. The majority of this year’s increase occurred since April as shorts sellers increased their positions by $2.3 billion in less than six weeks.

AAPL short interest has been trending downward for more than a year and a half, with occasional pops in short volume that evaporated as quickly as they arrived. AAPL short interest averaged $3.2 billion from 2009 to 2011 as AAPL’s stock price rose almost five fold to $57.86/share. From 2011 to 2015 AAPL stock began to test the $100/share mark and finally broke through and topped out at $133/share in February 2015. AAPL’s short interest also hit major milestones in those four years, averaging over $9.1 billion in short interest. AAPL short interest hit $12.1 billion in 2012 and $18.4 billion in 2013 before shorts began covering. AAPL hit its most recent 11 digit high of $12.8 billion in November 2015, but has averaged only $6.1 billion short interest since then.

AAPL’s increase in short interest is not a case of the tech tide lifting all boats. While short interest in both AAPL and the Powershares QQQ Nasdaq 100 ETF (QQQ US) traded in tandem for most of the year, we can see an obvious divergence in mid-May. While QQQ short interest fell by $316 million, or 4%, since May 15th, AAPL short interest increased by $1.3 billion, or 17%, since May 15th. Over that same time period, total short interest in the other four of QQQ’s top holdings, Microsoft (MSFT US), Amazon (AMZN US), Facebook (FB US) and Alphabet (GOOG US & GOOGL US), rose only 5%.

Short sellers have been building their position in AAPL in advance of recent analyst downgrades, making over $335 million in mark to market P\L today, and bringing their year-to-date losses down to $1.06 billion or down 16.1% on an average yearly short position of $6.6 billion. AAPL shorts have made over half a billion dollars in mark to market P/L over the last two trading days. Tech short sellers look to be targeting AAPL as the near term underperformer in the sector. It will be interesting to see if this is a longer term trade with short interest remaining at or above the $9 billion level or if we will see an avalanche of buy to covers to realize short term profits if AAPL’s stock price rebounds after this short term price slump.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
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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