‘Short’ Selling Hits Record on Nasdaq

Bearish bets on Nasdaq stocks reached a record high as of mid-September.

The number of Nasdaq shares sold “short” -- stock borrowed and sold, usually in a bet that the price will decline -- rose to 7.35 billion as of Sept. 15, up 1.2% from the level in mid-August, the Nasdaq Stock Market said Tuesday.

It was the sixth increase in seven months and signaled continued expectations on the part of many traders that the market would head lower.

Short sellers hope to repay loaned shares with stock bought at a lower price than their sale price. If that happens, their profit is the difference between the sale price and the repurchase price.

If they’re wrong, however, and a stock rises instead of falls, short sellers can face unlimited losses until they repurchase the stock and pay off the loan.

Short sellers also have been active in betting against New York Stock Exchange-listed shares. The number of NYSE shares sold short also reached a record in mid-September, at 9.74 billion shares, up 1% from mid-August.

Some market analysts believe that short selling is a good “contrary” indicator -- meaning that heavy shorting can indicate that traders are overly pessimistic, and that the market is primed to move higher.