How would you feel if you were short RealNetworks, Inc (RNWK)? Chances are good that you might begin to rethink your position with the stock making a new 5 YEAR HIGH today! As of August 15, there were 12.7 million shares short, the shorts probably have good reason on a fundamental basis, however, their timing appears to be terrible. If you have ever been short a rising stock, you know the fear it can instill as you face the possibility of theoretically unlimited losses. That dynamic may help to further fuel the rise in RNWK. Short term, the stock is extended at R2, but any pullback is likely to be shallow as the longs know the shorts are on the ropes.
This table (courtesy of Nasdaq.com, see link on the right) shows the shorts steadily building their bearish position since November. With the stock at new highs, NONE of these shorts are making money. How do you cut losses in a short position? BUY! Based on the average daily volume of 2.1 mllion shares last month, it would take the shorts six full days to cover their bearish bets.
I drew in the short position and noted the VWAP for the period where short position rose. For instance, from April to May, the short position rose by approximately 500,000 shares. The average price for the April to May period was 9.07. We can approximate that these 1/2 million shares are down by about $2.00. How would you feel if you were short? If the shorts get spooked, RNWK could see a nice spike higher.