Short Selling on NYSE Hits a Record High

The number of shares sold short on the New York Stock Exchange rose 7.6% in the month ended July 15 to the highest level ever--a sign of the bearish outlook of many investors.

NYSE short interest jumped to 882.63 million shares by mid-July from 820.27 million at mid-June, the exchange reported Tuesday.

In a short sale, a trader borrows stock from a broker and sells it in the open market. The trader is betting that the stock’s price will plunge soon, so that the loaned shares can be repaid with new shares purchased at a lower price. If a decline indeed occurs, the trader profits from the spread in prices.

Thus, a large short position typically means people expect the stock market to fall. However, experts note that significant short-selling activity can also be bullish, because short sellers can spark a rally if they rush to close out their positions at the same time.

The previous all-time high in NYSE short interest was set in December, 1990, at 855.77 million shares. That was just before the market surged at the outset of the Gulf War in January, 1991.