Novavax (NASDAQ: NVAX) stock has done well by those with short positions in it over the past 2 months with an 86% decline in NVAX prices. At least some of this was near obviously going to happen given the excitement over vaccine shares during covid and lockdowns. That sort of high altitude pricing just wasn't going to last forever. However we might also think that an over 80% decline is overdoing things a little bit.
However, it's the interaction of a recent price move up and the outstanding short positions that interests here. For there's still near 40% - 38.7% in fact - of the stock issue out on loan to short sellers. That's some 33 million shares, which we might think is a lot. But it's also true that the free or public float is 84 million shares. So we're not in GameStop country here, where the short positions were more than the entirety of the publicly available shares. Still, the issue is that there was a 12% rise in the Novavax stock price and what is going to be the impact of that on those short positions?
Novavax stock price from NASDAQThe specific cause of the price rise seems to be multiple presentations at the World Vaccines Congress. Which if we're honest about it doesn't seem to be that exciting. Not enough to move a price by $80 million dollars and up.
But what interests is that of course short sellers lose when a price goes up. Further, they've got to keep posting margin as their position deteriorates against them. At some point everyone runs out of money and the position needs to be closed. Crystalising those losses of course, but also alleviating the financial strain of ever more margin required.
This is how and why short squeezes occur. Prices move up, short positions need to be covered which increases buying demand for the stock. That ups the price again, making more short positions require closure and so the spiral feeds on itself.
The big question for us in a stock as shorted as Novavax is, well, how far up does NVAX need to go before that 40% short position starts to have to liquidate itself?
