Snap short interest has been remarkably high since the first day the company’s shares could be borrowed, and short-sellers have been cashing in millions of dollars in profits. The stock fell back to its IPO price last week but then bounced on Friday and continued to rise in premarket trades this morning.

Snap short interest

Snap short interest falling as profits locked in

It’s possible that some of the gains we’re seeing now are come from short-sellers locking in some profits. Data from financial analytics firm S3 Partners indicates that Snap short interest peaked on May 30 and has been slowly falling over the last few weeks. Research head Ihor Dusaniwsky said last week that short-sellers have been covering their positions to take profits.

Snap short interest peaked at $1.44 billion at the end of May and fell to $1.13 billion late last week. Short-sellers were up $195 million since the company’s initial public offering in March.

Is it still worth it to be short Snap?

According to Dusaniwsky, borrow rates on existing short positions in Snap are between 25% and 40%, and new borrows are being opened at fees of 40% to 45%. As a result, it’s getting very expensive to keep shorting the Snapchat parent company. He explained that the financing costs for the full $1.13 billion in Snap short interest was a massive $1.2 million per day.

With such high fees, short-sellers have to be asking themselves whether it’s really worth it to keep the position on their books, especially after they’ve raked in so much in profits. The steady decline in Snap short interest suggests that many short-sellers are starting to feel that the high fees are no longer worth it.

Short-sellers anticipate lockup expirations

However, some may keep hanging on to their positions because many expect Snap to plunge further as soon as the next block of shares is available to trade. The first lockup of insider-owned shares expires on July 31, while the second ends on August 31. According to Dusaniwsky, the expirations will release another 1.2 billion shares of Snap for trading.

He explained that the sudden influx of shares will reduce the borrow cost by increasing the supply of shares that can be borrowed while also probably send the company’s share price lower. It’s a win-win scenario for short-sellers. As a result, he expects Snap short interest to rise heading into the July 31 lockup expiration, as long as the company’s stock price stays close to its IPO price.

He added that short-sellers have a $195 million cushion now to last them until the first lockup expiration lowers the expensive borrow fees they’ve been paying since mid-May.

Shares of Snap were up by more than 1% in premarket trades this morning, but after the bell rang, they shifted into the red.