Why are Lake Resources shares becoming a short-seller target?

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Monday was a difficult day for the S&P/ASX 200 Index (ASX:XJO). At the time of this writing, the ASX 200 started the trading week with a loss of 0.91% so far. But it was an even worse day for one of the ASX 200 newcomers – Lake NL Resources (ASX:LKE).

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

Lake Resources also rose to the top of the ASX 200 equity trading volume charts as the day progressed. According investment.com, more than 14.55 million shares of Lake have traded in the stock market so far on Monday. Across the entire ASX 200 index, only EML Payments Ltd (ASX:EML) has had more action to find a new home so far.

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

Why are investors shorting Lake Resources shares?

Short selling refers to the practice of borrowing stocks and selling them back, with the intention of buying them back later. This is one way investors can profit if a stock’s price drops during this time.

If an ASX stock is among the most shorted stocks, it means that a large number of professional investors are betting that the company will lose value in the future.

This could therefore help explain Lake Resources’ high trading volume today.

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

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

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

So overall, not a great start to the week for Lake Resources stock price this week. Let’s see what comes next for this ASX 200 lithium stock.

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