Short Selling Rises in Tech Sector

Amid the tech stock sector’s recent dive, more investors have been trying to profit from declining, rather than rising, stock prices.

Nasdaq said Wednesday that “short interest”--shares borrowed (usually from a brokerage) and sold in a bet the price will decline--rose to 2.71 billion shares as of mid-May, up from 2.57 billion in mid-April.

Those figures cover only stocks on the Nasdaq National Market, which is where major tech issues trade.

By contrast, short interest on the Nasdaq SmallCap Market fell to 71.4 million shares as of mid-May from 80.3 million in mid-April.

Short selling can be highly profitable if you guess correctly. Selling borrowed shares at $50, for example, and replacing them when they plunge to $30 yields a profit of $20 a share.

But a wrong guess in a short sale can produce unlimited losses. If you short a stock at $50, and it then rises instead of falls, your losses grow until you finally buy back the stock to close out the bet.