NYSE Short Interest Falls to 7.78 Billion

The stock market’s gains between mid-June and mid-July may have been helped by retreating bears.

Short interest -- the number of New York Stock Exchange shares borrowed, sold and not yet replaced -- fell to 7.78 billion as of July 15, down 3.2% from mid-June and the lowest total since mid-February, the NYSE said Monday.

Many traders who sell stocks short are betting that the market price will decline. If the bet is correct the short-seller can buy the shares at a cheaper price to replace the borrowed stock, and pocket the difference between the sale price and the repurchase price.

Other investors use short sales as a hedging tool. For example, they may buy shares of the leading company in an industry, then short shares of a weaker rival, hoping that the short sale pays off if the market overall declines.

In a rising market short sellers sometimes rush to close out their bets, because rising share prices can lead to unlimited losses on short sales. Such “short covering” can add to the market’s gains.

NYSE short interest peaked at 8.2 billion shares in October and has since stayed in a relatively narrow range. By contrast, short interest on Nasdaq, home of many of this year’s hottest stocks, hit a record high of 4.6 billion shares in mid-June. Nasdaq will report its mid-July short interest in the next few days.