Goldman Sachs warns that hedge funds are worried about short squeezes

Hedge funds are worried about getting Gabe Plotkin’d — that is, getting carted out thanks to a short position in a stock that goes parabolic (like GameStop).

“We have had an unusual number of requests for our Retail/Options Short Squeeze Manager over the past couple weeks as hedge funds worry that elevated single stock volumes increase the likelihood of short-squeezes,” John Marshall, head of derivatives research at Goldman Sachs, wrote in a January 26 note. “Option volumes are not far from a multi year high.”

So far this week, those worries appear to be amazingly unfounded: a basket compiled by Goldman of companies in the Russell 3000 that investors love to hate has gotten crushed in both sessions so far this week, trailing that benchmark in each session by a lot.

That’s noteworthy as it suggests that the unprecedented bludgeoning of Nvidia was not anything resembling a catalyst for an unwind of popular long-short trades, at least at the single-stock level. If that were the case, we’d expect heavily shorted companies to at least outperform the broader market, if not go up, as funds sold their long positions and bought back their shorts.

Companies in the Russell 3000 with the highest short interest as a share of float include Hims & Hers, AMC, SoundHound AI, Plug Power, and MARA Holdings.