Short sellers cash in Apple bets as stock declines

[October 02, 2015]  By Noel Randewich

SAN FRANCISCO (Reuters) - Many short sellers appear to have unwound their bets against Apple this week, and a 6 percent fall in the stock price suggests they made money as investor worries about the company countered a record launch of its newest iPhone.

The relentless ascent of Apple Inc's stock since it debuted its first smartphone in 2007 has made it unpopular for most short sellers.

But worries about slowing economic growth in China, an increasingly important market for Apple, have recently hurt the Cupertino, California company's shares, sending them down about 19 percent from a record high in April.

On Thursday, Apple was down 2.2 percent at $107.83 on a report that chip suppliers were concerned the iPhone maker would cut chip orders for the fourth quarter.

The stock fell 2 percent on Monday even after Apple announced record first-weekend sales of its new iPhone 6S and 6S Plus handsets, suggesting investors have concerns about whether Chief Executive Officer Tim Cook can top sales of previous devices.

Borrowing in Apple shares grew 32 percent through most of September, and then abruptly dropped 31 percent this week, according to lending data from SunGard's Astec Analytics, which provides a strong glimpse into short-selling activity.

Short sellers borrow shares and sell them, hoping to buy them back later for less to return to the lender. During that time, they have to pay interest to the lender.

This week, Apple's stock has fallen almost 6 percent, suggesting short sellers wrapping up their bets may have made money.

Short selling in Apple increased from 1.1 percent of its outstanding shares in July to 1.6 percent in mid-September, although that level of short selling remained below the average rate of 2.7 percent for tech companies, according to Thomson Reuters data.

Since a selloff in Chinese equities in late August, Apple's stock has fallen about 7 percent, slightly less than the S&P 500's 9 percent decline.

Brad Lamensdorf, who manages the AdvisorShares Ranger Equity Bear ETF, is currently short Apple shares. He suspects investors are overestimating iPhone sales in future quarters and he believes recent trading volume in Apple shares hints at more weakness to come.

He also likes shorting Apple because he doesn't have to compete with other short sellers to borrow the company's shares.

"We don't like to get into highly crowded 'war shorts' that people have been in forever," he said. "Apple is the cheapest to borrow. There's plenty of supply and it's the lowest rate they'll charge you."

(Reporting by Noel Randewich; Editing by Cynthia Osterman)
 

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