Short sellers may be having second thoughts

Bearish bets on the direction of stock prices hit a record on the New York Stock Exchange this month, but the pace of increase slowed from June -- suggesting that some investors were having second thoughts about challenging the rising market.

The number of New York Stock Exchange-listed shares sold “short” climbed to an all-time high of 12.95 billion shares as of July 13, up 3.9% from 12.47 billion in mid-June, the NYSE said Thursday.

By contrast, the number of shorted shares had jumped 6.1% from mid-May to mid-June.

Short sellers borrow stock from brokerages and sell the shares in the open market. If the market price of the stock then falls, the short seller’s profit is the difference between the sale price and the price paid for shares used to repay the stock loan. But if the market price of the stock rises, short sellers lose.

Some investors use short sales to hedge their portfolios against losses, rather than to bet on an overall market decline.