Apple and Tesla are darlings of the market, but hedge funds are betting big profits as they will collapse

<pre><pre>Apple and Tesla are darlings of the market, but hedge funds are betting big profits as they will collapse

The Tesla logo can be seen on the Apple iPhone case in Santa Monica, California.

Patrick T. Fallon | Bloomberg | Getty Images

Elon Musk's electric car maker Tesla regained its title as the best-selling Wall Street stock on Wednesday.

That was at least until Apple stole it again.

Tesla's rapid rise in the past six months has not gone unnoticed by investors who have praised the Palo Alto automaker for its new plant in Shanghai and the better-than-expected auto supplies.

Almost two weeks ago, Teslas announced that it delivered a record 112,000 vehicles worldwide in the fourth quarter and 367,500 vehicles during the year, an increase of 50% over 2018.

But Tesla's 100% rally in the past six months has not escaped even Tesla's biggest critics, who have since doubled their bets that the company's shares will drop from their highest levels.

The group increased the dollar amount of Tesla's borrowed shares to $ 14.5 billion, making it the most trimmed American stock, according to analyst S3 Partners.

At that time, the Tesla shorts exceeded Apple's value, which was $ 14.3 billion. The iPhone maker has been the shortest selling stock in the U.S. market by total value since it passed Tesla in September.

Critics tend to be hedge funds trying to hit the broader equity market with concentrated equity portfolios that they like, combined with short sales versus those they don't like.

Short sellers then borrow and sell shares in a company that they believe will lose value. By selling a security at current prices and later buying it back at lower prices, investors can make a profit.

But Tesla's tenure was restored, as the most shortened U.S. stock was short-lived after Apple regained its # 1 spot on Thursday. Tesla's shares, which were barely sold on Thursday, were worth $ 13.7 billion, while Apple's value was $ 14.3 billion.

However, it should be noted that the value of Apple's short sales can appear high simply because it is one of the largest public companies in the world. Apple's market capitalization is about 14 times that of Tesla, which means that even small short sales in the iPhone manufacturer's portfolio can make big sums.

A look at the relative short sales of both companies reveals a different picture: only 1% of the Apple shares available for trading are sold at short notice, while Tesla has around 20%.