Why are Lake Resources shares becoming a short seller target?

It’s been a difficult day so far this Monday for the S&P/ASX 200 Index (ASX: XJO). At the time of writing, the ASX 200 has kicked off the trading week with a loss of 0.91% so far. But it’s been an even worse day for one of the ASX 200’s newest entrants – Lake Resources N.L. (ASX: LKE).

Lake Resources shares are having a rather wild day so far. This ASX 200 lithium stock is currently down by a nasty 3.47% at 69.5 cents a share. This move comes after the lithium company closed at 72 cents a share last week and initially opened at that level this morning. But soon after, Lake Resources dropped below this threshold and fell as low as 68 cents a share.

Lake Resources has also risen to the top of the ASX 200’s share trading volume charts as the day has gone on. According to investing.com, more than 14.55 million Lake shares have traded on the share market so far this Monday. Out of the entire ASX 200 index, only EML Payments Ltd (ASX: EML) has had more shares find a new home so far.

But there is another factor to consider with Lake Resources shares today. As my Fool colleague James covered this morning, Lake Resources has now entered the list of the top ten most shorted ASX shares on the market.

Why are investors shorting Lake Resources shares?

Short selling refers to the practice of borrowing shares and selling them, with the intention of buying them back at a later date. It’s a way that investors can profit if a share price falls during this period.

If an ASX share is amongst the top most-shorted shares list, it means that there are a large number of professional investors betting that the company will fall in value in the future.

So this might help explain Lake Resources’ high trading volume today.

So why might investors be selecting Lake Resources to short sell right now? Well, it could be a consequence of the messy saga we saw with this company last month.

As we covered at the time, Lake Resources announced the shock resignation of its CEO Steve Promnitz on 20 June. All signs pointed to a departure that was not exactly amicable. The most obvious of these was the firesale of all 10.2 million of Promnitz’s Lake Resources shares the very next day.

There has also been talk of overoptimistic demand projections for lithium over the next few years. Combine that with a Lake Resources share price that had soared more than 150% between February and April this year, and we have a list of credible reasons why investors might want to short sell Lake Resources shares right now.

So all in all, not a fantastic start to the trading week for the Lake Resources share price this week. Let’s see what comes next for this ASX 200 lithium stock.

The post Why are Lake Resources shares becoming a short seller target? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments. The Motley Fool Australia has positions in and has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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