Whenever a company gets shaken by bad news, investors are very quick to jump on any shorting options they can find. While this may seem logical, the truth is many people get burned by using this kind of strategy and not thinking through to the next step. Despite this, traders seem to be thinking that Equifax will tank again in the near future. Business Insider reports that:
Short interest… now sits at $281 million, according to the financial-analytics firm S3 Partners. Further, traders are holding 2.6 million shares short, an increase of 570,000 since the hack was first announced. All of that has occurred even as shares have mounted a 14% recovery, which followed a 35% plunge immediately after the hack was first announced.
There are two potential explanations for this. The first is that people are hoping for a renewed plunge based on follow up news or that they believe the fundamental trust in big data companies will be lost.
The first option is the riskier play. Investors are likely banking on Federal prosecution or the news of resigning executives to boost their positions. CTV News reports that:
Even with the departures of three top executives, Equifax is still facing several state and federal inquiries and a myriad of class-action lawsuits, including congressional investigations, queries by the Federal Trade Commission and the Consumer Financial Protection Bureau, and probes by several state attorneys general
However this became know shortly after news broke that high level executives sold shares in the company following the discovery of the hack. This means that the only news that is likely to shock the stock into a drop could be a long time off as we wait to see what the government rules on the situation.
The second option is that investors doubt the integrity of companies like Equifax going forward. The Financial Post recently put out an article that says that:
The recent massive data breach at Equifax Inc. has one bank warning that such incidents have the potential to turn consumers off digital payments, thereby hindering the transition to a “cashless society.”
If this is the sort of thing we can expect to be reflected in quarterly reports going forward, then the shorts may hold some solid water.
All this to say that before taking any options, consider the possibilities going forward. Be aware of any potential outcomes whenever you pursue such a risky investment.
To read the Financial Post’s article on the future of electronic payments in the wake of the Equifax hack, click here.
To read Business Insider’s article on increased short traffic on Equifax stock, click here.
To read CTV’s recap on the latest news in the Equifax hack, click here.
To subscribe to our free financial newsletter, sign up below.
[grwebform url=”https://app.getresponse.com/view_webform_v2.js?u=BKTzq&webforms_id=14431602″ css=”on” center=”off” center_margin=”200″/]
You may be interested
Job Hiring is Picking Up as Employers and Consumers Gain ConfidenceLamont J - March 29, 2021
The recent government stimulus for small and medium-sized businesses, personal stimulus checks, and declining Coronavirus cases, are all great news…
Fed Could Maintain 0% Interest Rate Until 2024Adam R - March 26, 2021
The Federal Reserve is holding its target interest rate in a range of 0.00% - 0.25%, even while the economy…