Uber's underwriters, led by Morgan Stanley, were so worried about the company's IPO that they deployed "a nuclear option" ahead of the deal last week to provide extra support for the stock — a so-called naked short, as CNBC's Leslie Picker reported Tuesday.
The catch: Now, actual short sellers are coming in at significant levels and could push the stock even further below its $45 IPO price.
What it means: Every IPO includes an excess amount of shares that allow underwriters to sell 115% of the available offering and then buy the additional 15% back, Picker explains. That extra 15% can support the stock's price if it falters.
- But in Uber's case, they opened a naked short, allowing underwriters to sell more than the "greenshoe" portion and then buy the shares back, providing "even more firepower."
The bottom line: That plan came up short as Uber's stock fell 18% in its first days as a public company before recovering Tuesday with a 7.7% gain.
What to watch: Actual short bets against Uber now total $768 million, with short sellers holding 11.5% of available shares, according to data from Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
- "We expect Uber short interest to increase over the next several days as short sellers continue to be active," Dusaniwsky said in a statement.
Go deeper: Uber's massive IPO sinks investors
