SpaceX short sellers are running out of bullets as stock rebounds 40% off low

Short sellers betting against SpaceX are rapidly retreating from the trade, just as the newly public stock rebounds from its post-IPO slump.

Short interest in SpaceX fell to about 11% of the company’s publicly traded shares Wednesday, down sharply from a peak of 34% last week, according to S3 Partners. The decline reflects a combination of bearish investors closing out positions and a significant expansion of the stock’s tradable float following the first major lockup expiration.

“Shorts that wanted to short are out of bullets,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. “Only so much money you can put into a trade.”

The exodus came as SpaceX shares staged a sharp rebound from their post-earnings sell-off, with short covering potentially adding fuel to the advance. Investors closing bearish positions must buy back shares, which can amplify upward moves when a stock is already rallying.

Shares jumped 11% Wednesday to around $148, lifting the stock about 10% above its $135 initial public offering price and roughly 41% above its Aug. 3 low.

SpaceX has endured a roller-coaster ride since going public. The stock initially tumbled after the rocket and satellite company disclosed in its first earnings report last week that capital expenditures were more than twice its revenue, fueling concerns about the enormous spending required to fund its ambitions.

The sell-off attracted a wave of short sellers, pushing short interest to unusually elevated levels relative to the stock’s limited public float. Short selling involves borrowing shares and selling them in hopes of buying them back later at a lower price.

That dynamic changed substantially last Thursday, when just over 911 million SpaceX shares became eligible for trading following the expiration of an initial lockup period. The newly unlocked tranche represented roughly 7% of the company’s shares outstanding and exceeded the 639 million shares sold in the IPO.

The larger float mechanically reduced short interest as a percentage of tradable shares. But short covering has also contributed to the decline, according to S3, as investors who had wagered against SpaceX bought back stock to exit their positions.

More supply is coming. On Aug. 20, another 319 million shares could unlock, followed by roughly 700 million in September and close to that number in October, according to the prospectus.

The additional shares could create fresh volatility by giving employees and early investors more opportunities to sell. At the same time, the larger float would make it easier for investors to establish new short positions if bearish sentiment returns.