Wall Street Traders Slash Market Hedges as Heavily Shorted Stocks Surge 30%

Wall Street traders have sharply reduced their appetite for protection against a market slump, even as the stocks most heavily bet against have surged about 30%, according to Bloomberg. The shift underscores a striking change in positioning: caution, once a popular hedge, has become an expensive trade.

The move comes amid signs that investors are abandoning so-called crash hedges, strategies designed to profit if markets fall hard, while short sellers have been squeezed by a powerful rally in the most shorted shares. Short selling involves borrowing shares and selling them in the hope of buying them back later at a lower price, but it can backfire quickly if prices rise, forcing traders to cover at a loss. A short squeeze can intensify those losses when rising prices trigger more buying by short sellers trying to exit.