How Affirm, Carvana cost short sellers over $3B in 2023

Data from S3 Partners indicates investors shorting certain stocks have faced punishing losses amid massive rebounds in 2023. "Buy now, pay later" fintech firm Affirm (AFRM) stock rocketed higher by over 420% in 2023, causing short seller losses of $1.5 billion. Likewise, used car platform Carvana (CVNA) notched nearly 1,200% in year-to-date gains that similarly resulted in $2.2 billion worth of losses for traders betting against a turnaround.

Yahoo Finance's Brad Smith and Josh Schafer break down the details, gauging the market environment that upended short seller expectations.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: Short sellers losing big on Affirm this year after shares of the buy now pay later company rebounded. Traders lost about $1.5 billion on the stock as it surged over 400% in 2023. A firm is not the only company that crushed short sellers this year. Carvana shares also rose this year costing these traders about $2.2 billion here. And there you're taking a look at some of that year to date activity. You've been tracking this alongside S3 Partners who's been able to pass some data through.

JOSH SCHAFER: Yeah, Brad, I mean, these stats always just stick out to me when you think about-- I was thinking about yesterday's market action, right? And our head of news Myles Udland wrote this in our blog online, but sort of pointing out the Affirm stock move of about 15% yesterday on a deal with Walmart is perhaps less about the deal with Walmart and more about where the market's positioned in terms of a firm.

I mean, you look at the stock, up 100% over the last month, now we should mention significantly off the highs that we saw in 2021 after a tough 2022. But a lot of this comes down to the short selling that you see in a stock like Affirm. S3 Partners also pointing out a stock like Palantir, a stock like Pinduoduo, Carvana. Some of the stocks that when you and I take a look at the market every day and we're like, why is Carvana up 20% today?

BRAD SMITH: Right.

JOSH SCHAFER: There's no news. There's not a ton of news going on here. Sometimes, it's just those shorts getting squeezed because the market is so heavily betting against a company like Affirm, a company like Carvana.

BRAD SMITH: Right. And it's a larger question of when a lot of that short selling and that betting against these companies also initiated. Because if you're looking at, say, the midpoint of this year or anytime between mid-September through the beginning of November, a lot of that shorting, perhaps would have been beneficial for them if they were in the market at that time or in the money at that time. But at the same time, you look at the covering that they've had to do since then.

I mean, November was really the initiation-- beginning of November was the initiation of that rally in shares of companies like Carvana, like Affirm as well, since that point in time, have been able to see their shares actually take back much of those if not all of those losses that they had seen.

JOSH SCHAFER: And a final point I'll make on this too when you mention when were these shorts put in. Some of the biggest losers this year, people that bet against these stocks, short sellers lost a ton of money. Tesla, NVIDIA, Apple, Meta, Microsoft, Amazon. The Magnificent Seven,

- Wow.

- Or the Magnificent Six-- I guess we can go with here-- are the top six, right? So that tells you how the market was feeling about big tech after that tough 2022 coming into '23. A lot of people thinking those stocks would go down and that is not what happened, so it led to a total of-- I've got to get a grand total number here, Brad, because it's huge-- $177 billion.

- Lost.

- Lost by short sellers thus far this year. And the year is not over, but--

BRAD SMITH: Still got days left, yeah.

JOSH SCHAFER: --we still got days left to lose money. We got days left to make money, right?