BlackBerry's share price has more than doubled over the last six months as buzz around its new smartphones has boosted investor confidence, but some traders are betting big that talk of a turnaround is over-hyped.
Nasdaq data released on Tuesday shows that short interest in the stock is at record levels and has more than doubled over the course of the last year.
With BlackBerry due to report quarterly results in two days, giving investors their first official clues on demand for its new Z10 touchscreen device, that buildup of bearish bets could send the stock price surging if the company delivers a positive surprise.
BlackBerry, a one-time pioneer in the smartphone market, hopes the device - powered by its new BlackBerry 10 operating system - and other devices soon to follow will turn its fortunes around and help it to win back market share in an ultra-competitive sector. But many traders are clearly unconvinced.
Short interest in BlackBerry's Nasdaq-listed stock has risen to more than 155 million shares, up from 136.5 million shares a month ago and 60 million at this time last year.
Traders who sell securities "short" borrow shares and then sell them in the hope that the price will fall, so they can buy them back more cheaply, return them to the lender and pocket the difference.
Markit, a financial information services company, said in a report last week that positive reviews around the Z10 have thus far failed to impress short sellers, with demand to borrow shares in BlackBerry hovering at record levels.
The firm, which collects data from custodian banks that run lending programs on behalf of investors who sometimes put their holdings into such programs, notes that roughly three-quarters of the BlackBerry shares that can be borrowed are already out on loan, meaning that it would be difficult and expensive to short any more of the company's shares at this time.
The number of short positions indicates that over 30 percent of BlackBerry's free float is currently being shorted, up from about 11 percent at this time last year.
The bearish data comes close on the heels of analysts' and media reports that the Z10 device had a rather muted launch in the United States last week.
Short Squeeze Eyed
BlackBerry is hoping that the Z10 and other new devices powered by its new operating system will help it to regain ground ceded to rivals such as Apple Inc's iPhone, as well as Samsung Electronics Co's Galaxy line and other devices powered by Google Inc's market-leading Android operating system.
BlackBerry's results this week will, however, only provide investors with limited insight on demand for the Z10, which was on sale during just the final month of the latest quarter. And although the Z10 is now available in more than 25 countries, it initially went on sale only in the United Kingdom and Canada.
BlackBerry's volatile stock is nevertheless likely to swing wildly following the results on Thursday, as analysts and investors read into the numbers and extrapolate broader sales trends for the new device across the rest of the globe.
The company's stock, which closed at $14.46 on Tuesday on the Nasdaq, has already dropped roughly 10 percent since Friday after the reports of the Z10's lackluster U.S. launch.
(Read More: BlackBerry: How It Can Rise Nearly 50%)
The recent pullback in the stock ahead of results, however, may not be all bad news for those investors hoping for a big turnaround in the company's fortunes, as any positive outlook or data points from the company on Thursday would raise the prospects of a short squeeze in the stock.
In that scenario, bearish traders that sold the stock short would be forced to buy shares to avoid big losses on their positions - something that only serves to work against short sellers and push a stock higher.
Eric Jackson, the founder and managing partner of Ironfire Capital LLC, believes the size of the short position in the stock may serve as a big catalyst for BlackBerry's share price, if the company provides investors with an upbeat forecast.
"Even if they report a so-so quarter ... if they provide robust guidance for the current quarter, that could really light a fire under the stock," said Jackson, whose firm owns shares in BlackBerry.