The bears pile upNikola Corp., after the Securities and Exchange Commission was supposed to examine the electric truck maker, but so far short sellers are powerless to determine where the stock will go next due to a lack of available stocks discovered.
While trading volume was high, with Nikola denying accusations of fraud made by Hindenburg Research in a short report, only 1.3 million of the 379 million shares outstanding were added to Nikola’s short exposure of last week through Monday, according to analytics firm S3 Partners.
On the contrary, the recent swoon was driven by bullish investors who took money off the table.
Nikola has been at the center of two hot trends – blank check companies and electric vehicles – attracting fans of investors and short sellers. After emerging from a reverse merger with a special purpose acquisition company (SPAC), Nikola’s shares more than doubled and then plunged after awarrant call and Hindenburgreport claiming that Nikola was a “complex fraud”.
On Monday, the Securities and Exchange Commission reportedly took a closer look. Shares fell 10.4% on Tuesday, but don’t blame the bears, S3 chief executive Ihor Dusaniwsky said.
Read more: SEC Examines Nikola on Allegations of Short Seller Fraud
Short sellers are excluded from trading so far Tuesday. “Some brokers are not approving new shorts this morning because there are no stocks to borrow in size,” he said.
In the short term, Nikola’s short sale will not boost price action “due to a severe lack of availability of equity loans,” S3 said. This is a function of laymen’s stocks primarily held by retail investors who are not active short stock lenders.
Even if short sellers find stocks short, borrowing costs are high and eat into profits if current rates – 25% to 30% – rise much more. Fees were 600% higher in early July.
“Until the music stops and the conga line of potential short sellers return to their seats, the total short selling stocks should remain constant,” Dusaniwsky said.
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