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Risk rally on Wednesday pushed investors to unwind short bets - Vanda Research

Kitco News

Oct 14 (Reuters) - Wall Street’s highly shorted stocks rallied on Wednesday as institutional investors pared their short bets due to a strong rebound in risk sentiment, strategists at Vanda Research said in a note.

U.S. stocks are up more than 1% on Thursday, building on the previous session’s gains that were led by big growth names like Amazon.com and Microsoft

"We believe institutional investors were forced to cover their shorts, either because they were de-grossing or because they feared that a rebound in risk sentiment could inflict pain on their short book," Vanda strategists Ben Onatibia and Giacomo Pierantoni said.

Nikola Corp, Workhorse Group Inc, Qualtrics International and Canoo In — among stocks with the highest short interest as a percent of free float, as per data from S3 Partners — have rallied between 8% and 11% this week.

The highly shorted names also got high retail mentions on Reddit’s WallStreetBets, strategists said, noting that comments on such stocks on the forum was very close to the daily average in September and October.

Retail investors, however, had nothing to do with the short squeeze, the strategists noted, as individual purchases of these stocks on Wednesday were a lot smaller than most days in September and October.

Short-sellers are bearish investors who borrow an asset in hopes they can buy back it when the price falls, to cover the loan and pocket the difference.

Under a short-covering move, investors scramble to buy stocks that they had bet would decline, in light of a turn to positive developments. (Reporting by Medha Singh in Bengaluru; editing by Uttaresh.V)

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