Short Selling, Squeezes, and Finding the Other Side of Bad Companies

In this Skull Session, we are bringing back Sean Westropp of Deep Sail Capital (@DeepSailCapital) to discuss the current short-selling environment. The timing was useful because we have also been tracking our own zombie-style basket of lower-quality companies, while Sean has been spending more time writing publicly about short setups and short squeezes.

Sean explained that his Shorts & Squeeze Corner Substack grew out of repeated questions about how short selling actually works. His work increasingly focuses on the mechanics behind heavily shorted stocks, including the conditions that can turn weak businesses into sharp trading opportunities. Float dynamics, name recognition, and a catalyst can combine to create powerful moves even in companies that investors broadly view as broken.

That led into a broader discussion of how these trades develop. Sean argued that some of the best squeeze candidates come from stocks that have already been crushed, are widely regarded as poor businesses, and still retain enough public recognition to attract attention. He used names like Allbirds, Inc. (NASDAQ:BIRD), Avis Budget Group, Inc. (NASDAQ:CAR), Virgin Galactic Holdings, Inc. (NYSE:SPCE), Groupon, Inc. (NASDAQ:GRPN), and Beyond Meat, Inc. (NASDAQ:BYND) to illustrate how quickly these situations can move when the setup is in place.

Separating Real Demand From Theme Chasing

The discussion then shifted to the current opportunity set. Sean said last year offered clearer short opportunities in areas like quantum and small modular reactors, where valuations moved far ahead of near-term fundamentals. He still sees those areas as potential shorts again, but emphasized that timing is the hard part.

AI-related infrastructure was a more difficult topic. Sean was cautious about shorting companies that have real revenue growth or real customer demand tied to the AI buildout. The distinction he kept coming back to was whether a company is actually selling into the supply chain or simply trying to ride the theme.

That same point came up when we talked about smaller companies using AI, energy storage, satellite, or data center narratives to attract attention. Some may have real technology or improving fundamentals, while others may just be taking advantage of the market’s appetite for a hot category. In those cases, the challenge is not just identifying the weak business, but deciding whether the stock can still move higher first.

Risk Management Is the Real Short Selling Skill

The most practical part of the session focused on risk management. Sean emphasized that short selling is not simply about identifying overvalued companies. Timing matters just as much, including monitoring borrowing costs, understanding liquidity, and recognizing when positioning is stretched enough for the market to reverse.

He also noted that a short can look compelling on fundamentals and still lose money through borrow costs, margin pressure, or sharp countertrend moves. For that reason, he tends to trade around positions rather than treat a short as a single static bet. The goal is to make a series of higher-probability decisions rather than rely on valuation alone.

The broader takeaway was that studying the short side can also improve long-side thinking. Watching weak companies, crowded positioning, and speculative narratives helps surface both downside fragility and occasional upside dislocations. Across both, timing remains the key variable, since sound analysis applied too early can still be an expensive trade.

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Source: https://geoinvesting.com/short-selling-squeezes-and-finding-the-other-side-of-bad-companies/