Short Sale Stocks: The 5 Companies Bears Love to Hate

WASHINGTON, DC - MARCH 05: Grover Norquist, President, Americans for Tax Reform, is interviewed by SiriusXM Patriot host Andrew Wilkow at SiriusXM Studio on March 5, 2013 in Washington, DC. (Photo by Leigh Vogel/Getty Images)
Leigh Vogel, Getty Images
The market hit a series of fresh highs this month, but there's no shortage of bears betting that share prices will soon fall. A whopping 13.3 billion shares were sold short on the New York Stock Exchange as of the end of last month. Nearly 7.5 billion more shares have been shorted on the tech-heavy Nasdaq.

In a nutshell, selling short means reversing the traditional buy and sell order of a stock transaction. Therefore a short profits from falling prices -- but takes a hit when the market heads higher. (For a bit more background, here's how it works: An investor borrows shares from a broker through an order to sell short. The investor must, at some later point, close out that position by placing a buy order to cover the short. This sort of transaction can be dangerous given the unlimited downside if a stock shoots higher. But it can be lucrative if a shorted stock falls.)

So which stocks are on the most-shorted list?

With 20.8 billion shares sold short between the country's two leading exchanges, there are plenty of prolific companies with huge bearish positions. Here are five with the largest short positions as of the end of February.
Feb. 28 Dec. 31
Sirius XM Radio (SIRI) 414.0 million 355.4 million
Nokia (NOK) 338.0 million 291.7 million
Frontier Communications (FTR) 227.6 million 212.5 million
Intel (INTC) 216.0 million 215.5 million
Bank of America (BAC) 161.3 million 186.6 million
Source: Barron's.

Why these companies? Let's dig a little deeper:

Motley Fool contributor Rick Munarriz owns shares of Bank of America. The Motley Fool recommends Intel. The Motley Fool owns shares of Bank of America and Intel. Try any of our newsletter services free for 30 days.

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I'm just trying to learn a little more in this area also, and how I believe it works when you short a stock, is you borrow shares from your broker through a margin account. The shares are immediately sold in the open market and funds are deposited to your account. Then eventually sell at a lower value. Example, you borrow lets say 100 shares of a company we ll just call ABC. The value is $100 per share they are sold right away and you collect $10,000 in your account. Two weeks later you wake up and the stock fell to $50, you then buy back the shares at $50 and return the 100 shares you originally borrowed at a cost of $5,000 while you keep the remaining 5,000 as profit.
This does not include however any fees and commissions brokers may charge. Seems nice in theory, but as I said I'm just learning.

September 14 2013 at 12:28 PM Report abuse rate up rate down Reply

How does that even work? If you buy a stock at a specific price and then the stock loses value wouldn't you be losing money when you sold said stock? I don't see how there even could be any way to make a profit on a stock that's value has dropped from the time it was bought.

March 22 2013 at 5:49 PM Report abuse rate up rate down Reply