The group has seen paper profits of nearly $13 billion this year by wagering on a drop in the prices of small-, micro- and nano-cap shares, according to an estimate by S3 Partners LLC based on the average amount of short positions in the market.
The small-caps stocks joined in the equity-market rally from June through July. But they’ve been hit hardest during the recent pullback, with about $9.7 billion of short-sellers’ estimated profits emerging since August, according to S3’s data. “They also tend to be the companies that take the brunt of tighter credit conditions and tighter lending standards,” Haworth said. “I think that’s kind of created this environment that’s put a lot of pressure on small caps.”
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