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Stocks are near record levels of valuation as markets head into the most volatile months of the year. Is it time for the short sellers’ famine to turn into a feast? Let’s look at what companies are targeted by this bearish group as of mid-September. If any are in your portfolio, you might want to double check your thesis.

Companies with high percentages of float sold short

With 26.8 per cent of its float sold short, Air Canada (AC-T) occupies the No. 1 spot on the Top 20 companies by percentage of float sold short table (data provided by S3 Partners). COVID-19 continues to delay the airliner’s recovery, and fuel costs are on the rise. The short position may also reflect arbitraging between the airliner’s stock and convertible debentures.

There were four new entries on the table: Tidewater Renewables Ltd. (LCFS-T), a newly listed Calgary-based company focused on renewable energy, Morguard REIT (MRT.UN-T). a Mississauga-based company that owns retail, residential, office and other properties, Meta Materials Inc. (MMAT-Q), a Dartmouth-based developer of smart materials and photonics, and the Betapro Natural Gas 2x Bull ETF (HBNNF).

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Top 20 companies as percentage of float sold short (as of Jan. 20)

Company% of float sold short
Air CanadaAC-T26.8%
Briacell Therapeutics Corp.BCT-T25.5%
Aurora Cannabis Inc.ACB-T22.8%
Tidewater Renewables Ltd.LCFS-T16.6%
Village Farms VFF-T16.0%
Aurinia Pharmaceuticals Inc.AUPH-Q15.8%
Canopy Growth Corp.WEED-T14.7%
Betapro Nat Gas 2x Bull ETFHNU-T14.2%
Lithium Americas Corp.LAC-T14.0%
Alpha Pro Tech Ltd.APT-A14.0%
Sundial Growers Inc.SNDL-Q13.8%
Tucows Inc.TC-T13.6%
Exco Technologies Ltd.XTC-T13.6%
Dirtt EnvironmentalDRT-T12.7%
Organigram HoldingsOGI-T12.2%
Great West Lifeco Inc.GWO-T12.0%
Morguard REITMRT-UN-T11.8%
Hexo Corp.HEXO-T11.6%
Canadian Solar Inc.CSIQ-Q11.5%
Meta Materials Inc.MMAT-Q11.4%

Source: S3 Partners

Companies with large short positions are at risk of short squeezes if their share prices are in strong uptrends and short sellers are feeling pressure to buy back the shares they borrowed. The companies on the table with strong price gains over the past month are: Aurinia Pharmaceuticals Inc. (AUP-T, 65.3 per cent), Briacell Therapeutics Corp. (BCT-X, 36.0 per cent), Lithium Americas Corp. (LAC-T, 25.2 per cent) and Meta Materials Inc. (MMAT-Q, 71.4 per cent).

Other factors contributing to short squeezes are high stock-lending rates and days-to-cover ratios. Briacell Therapeutics has an elevated annualized cost to borrow shares of 30 per cent. As for the days-to-cover ratio, it is high for: Air Canada (58), Exco Technologies (102), Tucows Inc. (TC-T, 89), Great West Lifeco Inc. (GWO-T, 235) and Morguard REIT (MRT.UN-T,130).

Companies with significant put-option activity

Bearish views on stocks can be uncovered from not only short sales but also put-option trades. The table, Top ten companies with significant put-option activity, lists 10 Canadian companies with significant put-option activity, based on data provided by the Montreal Exchange.

Top ten companies with significant put-option activity (Sept. 17)

CompanyPut-option trades as % of total (Aug. 1-31)Put-option trades as % of total (Sept.1-17)
Bank of Nova ScotiaBNS-T18.40%49.30%
Canadian Imperial Bank of CommerceCM-T36.90%54.50%
Aurora Cannabis IncACB-T18.90%60.80%
ARC Resources Inc.ARX-T20.00%63.20%
National BankNA-T28.70%65.20%
Royal BankRY-T26.00%66.90%
Sun Life FinancialSLF-T42.20%73.50%
iShares S&P/TSX 60 ETFXIU-T85.70%92.50%
BMO Equal Weight Banks ETF ZEB-T60.20%99.60%
iShares S&P/TSX REIT ETFXRE-T99.40%99.90%

Source: Montreal Exchange

Bank stocks feature prominently. Could this be due to nervousness over the financial troubles of China’s real-estate giant, Evergrande Group? New technologies are also emerging to challenge the status quo in the financial sector. And the Liberal Party has pledged higher taxes.

Not all put-option trades are directional bets. They can additionally be purchased as hedges and/or used in combinations known by names such as straddles, collars, and strangles. To learn more, check out the education page on the Montreal Exchange’s website.

ETFs will generally have a greater proportion of put-option trades than call-option trades due to investors using them to hedge out industry and market-level fluctuations. Thus, high levels of puts are not entirely bearish for ETFs.

What would be of interest, however, is if the proportion of put trades for an ETF increased significantly over a period – or is at an extremely high level. This appears to be case for the three ETFs on the table: the iShares S&P/TSX 60 (XIU-T), BMO Equal Weight Banks (ZEB-T) and iShares S&P/TSX REIT (XRE-T).

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Companies with significant monthly increases in short sales

Large increases in short interest can be another bearish sign. The table, Top 20 monthly increases in short sales, lists companies with the largest increases in the dollar value of short interest during the month ending Sept. 20.

Of note is the large jump for Shopify Inc. (SHOP-T), a market darling during the current bull market. Its three-month increase, at $615.7 million, was the largest of all stocks. Nonetheless, the percentage of float sold short remains small at 1.8 per cent.

Top 20 increases in short sales (Sept. 2021)

CompanyIncrease in short position over last month ($mil)% of float sold short
Royal Bank of CanadaRY-T$262.0 1.1%
Shopify Inc.SHOP-T$182.4 1.8%
Canadian Natural ResourcesCNQ-T$163.5 1.9%
Aurinia Pharmaceuticals Inc.AUPH-Q$152.9 15.8%
National Bank of CanadaNA-T$113.9 4.8%
CN RailwayCNR-T$110.9 3.0%
TC Energy Corp.TRP-T$106.5 4.3%
Ovintiv Inc.OVV-T$105.5 4.6%
Meta Materials Inc.MMAT-Q$105.3 11.4%
Cameco Corp.CCO-T$94.6 3.1%
Bank of MontrealBMO-T$86.4 2.8%
Manulife FinancialMFC-T$82.4 3.8%
Nutrien Ltd.NTR-T$78.5 1.1%
Lululemon AthleticaLULU-Q$77.8 1.6%
Tourmaline Oil Corp.TOU-T$66.2 2.6%
Lithium Americas Corp.LAC-T$65.5 14.0%
Lightspeed Commerce Inc.LSPD-T$61.1 2.8%
Shaw Communications Inc.SJR-B-T$60.5 6.3%
ARC Resources Ltd.ARX-T$58.3 3.4%
Innergex Renewable EnergyINE-T$56.3 8.1%

Source: S3 Partners

Short positions in the Canadian cryptocurrency sector

In June, the Short sales on the TSX: What bearish investors are betting against column reported that 12.4 million units of Canadian cryptocurrency ETFs were sold short. Three months later, as of Sept. 15, the number of units short is 19.6 million, or 58 per cent higher.

Over the summer, the prices of the cryptocurrency ETFs rallied from their crash in the spring, retracing about two-thirds of the plunge. But in September, they have lost momentum and are down an average -12 per cent over the month to Sept. 20.

The June table did not include short positions in other listed funds or the shares of cryptocurrency companies. If we include these entities, total short interest for the sector would come in higher by about two more million shares, and the amended table would look like this:

Short positions in the Canadian cryptocurrency sector (Sept. 20)

SecurityTickerNumber of shares shorted as of Sept. 15Change from Aug. 31.
3IQ Coinshares Bitcoin ETF CDN$ UNBTCQ-T559,396507,039
3IQ Coinshares Ether ETF UnitsETHQ-T24,672-2,819
Accelerate Carbon-Negative Bitcoin ETFABTC-T5,8795,879
Betapro Bitcoin ETFHBIT-T2,618-7,715
Betapro Inverse Bitcoin ETFBITI-T55,69334,526
Bitcoin ETF CAD Unhedged unitsEBIT-T74,82222,031
Bitcoin ETF USD Unhedged unitsEBIT-U-T20,375-2,095
Bitcoin Fund (THE) CL 'A' CAD UnitsQBTC-T19,5324,581
Bitcoin Fund (THE) CL 'A' USFQBTC-U-T881240
Bitcoin Well Inc.BTCW-T15,549-43,680
BITFARMS LTD.BITF-T1,602,139-118,150
CI Galaxy Bitcoin ETF CAD UnhedgedBTCX-B-T5,527,4091,111,536
CI Galaxy Bitcoin ETF Unhedged USBTCX-U-T289,20731,194
CI Galaxy Ethereum ETF CDN$ DENOM UNHGETHX-B-T4,171,005733,009
CI Galaxy Ethereum ETF US$ DENOM UNHGDETHX-U-T21,758-86,806
Cryptostar Corp.CSTR-T190,379-378,701
Ether Capital Corp.ETHC-T85,72180,463
Ether ETF CDN$ Denominated Unhedged UNETHR-T289,134-5,633
Ether ETF US$ Denominated Unhedged UNETHR-U-T32,2251,904
Ninepoint Bitcoin ETF UNBITC-T184,73549,689
Ninepoint Bitcoin ETF UN USFBITC-T50
Purpose Bitcoin ETF USD NON-CUR HedgedBTCC-T4,092,169-154,554
Purpose Bitcoin ETF CAD NON-CUR HedgedBTCC-T3,410,2811,427,030
Purpose Bitcoin ETF CAD Currency HEDGBTCC-T212,582-53,159
Purpose Ether ETF CDN$ DENOM CUR HEDGETHH-T286,591-69,190
Purpose Ether ETF CDN$ ETHH-T186,305-98,939
Purpose Ether ETF US$ DENOM ETHH-U-T112,874-8,133
The Ether Fund CL A CDN$ UnitsQETH-UN-T59,40927,938
The Ether Fund CL A UNITS USFQETH-U-T1,166-18,465
Total21,534,5112,989,020

Source: Investment Industry Regulatory Organization of Canada

Shorted companies with convertible securities

Several of the companies appearing in the tables of short positions had convertible debentures in their capital structures. Short sellers may take positions in these companies to arbitrage price discrepancies between their shares and convertibles. Besides Air Canada mentioned above, they were: Tidewater Renewables, Dirtt Environmental, Morguard REIT and Innergex Renewable Energy.

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