Short sellers borrow shares and then sell them in expectation that the price will drop, allowing them to repurchase the borrowed shares at the lower price and pocket the difference.
While investors may have unwound some of their short positions in Yahoo and Google, they were getting extremely bearish on smaller Internet companies. The short interest in GuruNet (GRU, Trade), which runs the fast-rising Answers.com search engine, saw its short interest soar 88 percent. Separately, GuruNet on Tuesday released a version of its service made specifically for mobile devices. The short interest in Ask Jeeves (ASKJ, Trade) shot up 17 percent.