Short Selling Reflects Investor Optimism

The recent Reddit inspired mania surrounding the short positions in GameStop and a handful of other stocks has focused broad public attention on short squeezes and the practice of selling stocks short.

The headline-grabbing antics surrounding the trading of GameStop et al have created a public perception that many stocks trade under the weight of heavy short selling activity.

Such is not the case, the highest level of short selling in the past 25 years being well below 4% of the S&P 500 market cap.

Indeed, the current level of short selling is just 1.6% of market cap which is essentially the same low level reached at the peak of the internet bubble era.

The current level of short interest is one, of many, indications of extreme investor optimism that tells a cautionary to investors.

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