Short Interest in Biggest Tech ETF Surges to Highest Since Covid

(Bloomberg) -- Wall Street may have been caught off-guard by Meta Platforms Inc.'s dismal earnings, but a band of ETF traders saw this renewed rout in tech stocks coming.

Short interest as a percentage of shares outstanding in the Invesco QQQ Trust Series 1 ETF (ticker QQQ) almost doubled in the past seven trading days to the highest since March 2020, according to data from IHS Markit Ltd. More than 5% of the fund is now out on loan.

The $195 billion product, one of the largest exchange-traded funds in the world, tracks the tech-focused Nasdaq 100 Index. Futures for that gauge pointed to a 2% slump on Thursday morning after Meta reported faltering growth in the fourth quarter while delivering an underwhelming forecast for the current period.

Data overnight also showed that on Tuesday, investors added another $135 million to the ProShares UltraPro Short QQQ ETF (SQQQ), a leveraged fund that aims to deliver three-times the inverse performance of QQQ. It has now lured almost $400 million in 2022 to take assets to more than $2 billion.

SQQQ was one of the biggest ETF gainers in early trading, jumping around 6% as of 8:03 a.m. in New York. QQQ was down about 2%

Mark Zuckerberg-founded Meta could see about $180 billion wiped off its shares at the open. Other social media-focused stocks including Twitter Inc., Snap Inc. and Pinterest Inc. are also poised to drop.

While the miserable results from the Facebook parent were a surprise, short sellers in QQQ were likely betting that a recent rebound in U.S. tech stocks wouldn't hold regardless. After plunging in the first few weeks of 2022 as the prospect of rising interest rates spurred investors to ditch expensive-looking growth stocks, QQQ had gained 8% in the past week.