Short Sellers Gain $1590 Billion as U.S. Stocks Plunge 20%

In the backdrop of a significant downturn in U.S. stocks due to escalating trade tensions, short sellers have experienced their most substantial gains since 2022. Data indicates that within just six trading days, investors betting on a decline in stock prices realized approximately $1590 billion in paper profits.

Following President Trump's announcement of new high tariffs globally, the market faced a severe setback. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 index, emerged as the most profitable shorting target. This month alone, shorting SPY has yielded over $61 billion in paper profits for short sellers.

Ihor Dusaniwsky, the head of predictive analytics at S3 Partners LLC, commented, "In this market correction, shorting has almost become the most profitable strategy. 81% of short positions have turned a profit, and 97% of short capital is in the green."

Beyond SPY, Apple Inc. (AAPL), NVIDIA Corporation (NVDA), and Tesla Inc. (TSLA) have been key targets for short sellers to reap profits. The Invesco QQQ Trust Series 1 ETF (QQQ), which tracks the Nasdaq-100 index, also made it into the top five most profitable short trades for the month.

The aforementioned five short targets have already generated over $20 billion in paper profits for investors. The "Magnificent Seven" tech stocks, including Meta Platforms Inc. (META), Amazon.com Inc. (AMZN), and Microsoft Corporation (MSFT), have also made it into the top fifteen most profitable short positions.

In addition to NVIDIA, Advanced Micro Devices Inc. (AMD), Broadcom Inc. (AVGO), and Micron Technology Inc. (MU) have become battlegrounds for short sellers betting on declining stock prices.

Despite the substantial paper profits, short selling enthusiasm remains undiminished. S3 data shows that new short positions added in April reached $460 billion, indicating that if the market suddenly rebounds, these reverse bets could be forced to close, exacerbating the upward momentum.

Currently, the total short interest has decreased by approximately $1140 billion, primarily due to the decline in stock prices leading to a reduction in market capitalization. However, if the market stabilizes and begins to recover, short sellers will need to cover their positions to lock in profits. This could align with the momentum of bullish traders and investors fearful of missing out, potentially driving the market to experience volatile swings during the rebound.

Dusaniwsky noted, "When the market hits bottom and starts to recover, short sellers will rush to cover their positions, joining forces with bulls to drive the market's upward volatility, much like they did in driving the market down."