Publicly traded cannabis stocks have always been subject to a whipsaw volatility and the latest increase in short interest has only fueled those wild swings. Short selling is a trading strategy where investors bet on a stock selling off. They sell the stock at a high price, betting the price will fall and then they buy the stock at a lower price to cover the short position.
If the stock moves in the opposite direction, in this case moving to $11, then the shorts hurriedly buy to cut those losses. This creates a short squeeze, that often runs the price up even higher as the shorts rush to outdo each other.
Most stock sectors experience some short action, but when the numbers jump it’s worth keeping an eye on. In the last few weeks, those short positions have jumped dramatically. There are now $1 billion of shorted cannabis stocks.
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