Is There a Decline in Short Sales?

From The Big Picture:

Interesting…

Meanwhile the S&P 500 declined 30% from 1,200 to 850 in the same time frame - I realize this isn’t a metric of correlation (especially in lieu of the massive liquidations over this same time) but it’s peculiar that there are fewer short sales.

Here’s what I think is going on…

From Bloomberg:

VIX Jumps

The benchmark index for U.S. stock options jumped to the highest since Jan. 23 as investors paid more to use options as insurance against stock-market declines. The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 8.8 percent to 47.49. The index averaged 32.65 last year.

Could it be that people are using options instead of formal short sales? When volatility is this high, it is easier and safer (to a degree) to buy a put option to hedge against losses…or set up a synthetic short sale if your risk appetite is higher. Another benefit of buying put options, is we are not victim to the schema of “stocks can only go down to zero, but can go up to infinity,” since we only lose the price paid for the option (should it expire or fall deeply out of the money).

Secondly, when the VIX is at 47, there are rapid swings in short periods, allowing the investor a better chance of executing a profit - If I bought a put on the Dow with a strike price of 8,300 with 20 days until expiration, and the index suddenly jumps to 8,500, there’s no real cause for worry. There is still a very good chance the option falls in the money in 20 days.

In summation, I don’t think people have stopped shorting in an environment like this - they’re just using different tools to do it.

Stock position: None.