Investors betting against SpaceX are rapidly closing their positions, as the newly public company's shares recover from a post-IPO slump. According to data from S3 Partners, the short interest in SpaceX fell to approximately 11% of the company's publicly traded shares on Wednesday, a sharp decline from the peak of 34% seen last week. This reduction reflects bearish investors exiting their trades and a significant increase in the number of tradable shares available after the first major lockup period expired.
"Short sellers who wanted to short have run out of ammunition," said Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3 Partners. "There's a limited amount of money you can put into one trade." The capital outflow coincides with SpaceX's stock rebounding strongly from its post-earnings selloff, with short covering likely amplifying the rally. Investors closing out bearish positions must buy back shares, which magnifies the upward trend when prices are already rising.
On Wednesday, the stock surged 8% to around $144, placing it about 7% above the IPO price of $135 and roughly 38% higher than its low on August 3. SpaceX has experienced a volatile ride since its public debut. The rocket and satellite company initially tumbled after its first earnings report last week, which revealed capital expenditures more than double its revenue, sparking concerns over the massive spending required for its ambitious goals.
The selloff attracted a wave of short sellers, pushing short interest to unusually high levels relative to the stock's limited public float. Short selling involves borrowing shares and selling them, hoping to buy them back later at a lower price. Last Thursday, the situation changed dramatically as over 911 million SpaceX shares became eligible for trading after the initial lockup period expired. The newly unlocked shares represent about 7% of the company's outstanding shares, exceeding the 639 million shares sold in the IPO.
The larger float mechanically reduced the short interest percentage relative to tradable shares. However, according to S3, short covering also contributed to the decline, as investors who had bet against SpaceX bought back shares to exit their positions. More supply is on the way. According to the prospectus, an additional 319 million shares could unlock on August 20, followed by approximately 700 million shares in September, and a similar amount in October. The influx of new shares could introduce fresh volatility, as employees and early investors gain more opportunities to sell. At the same time, the larger float also makes it easier for investors to establish new short positions if bearish sentiment returns.