Qualcomm (NASDAQ:QCOM) and Apple Inc. (NASDAQ:AAPL) have announced that they have ended their differences, thus ending an acrimonious patent legal battle that had dragged on for over two years. The legal dispute had threatened Qualcomm’s central business model with the risk of having an overhang QCOM stock. Therefore it was no surprise that there was piling on the company from short-sellers with the hope of benefiting from QCOM’s woes.
Bearish Industry Market
At the end of 2018, QCOM’s short interest increased tremendously with the bearish outlook attributed to the volatility the industry market experienced after pulling back in Q4 when it hits the tech industry hardest. However, the shorts remaining are being crushed by the current rally as a result of the settlement of the dispute, with QCOM stock up by close to 40% since Monday.
According to S3 Analytics, which specializes in measuring short selling activity, the short sellers suffered $228 million mark-to-market loss collectively yesterday before today’s surge. S3 indicates that short sellers enjoyed $1.34 billion mark-to-market profits in 2018, with most paring back their exposure. The bears managed to pocket considerable profits and minimized risk associated with the legal dispute with the outcome having significant consequences.
Panic to Cover Positions
Apple’s argument was that Qualcomm’s fundamental business model of technology licensing and selling of chips at the same time was illegal, but there was always a possibility of a settlement. As a result, short sellers are scrambling to try and cover their positions while pushing the price higher in a short squeeze.
S3 Analytics in a statement indicated that QCOM shorts have been covering their short positions all year and this is expected to accelerate the process of short covering in the coming days, which juices the QCOM stock price to increase, provided the stockholders carry on bidding up the stock price.
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