As The Margin Calls Come In, The Most Shorted Stocks Are Doing Just Fine

One would think that in today's abysmal tape, where as many have described the market moved in a way that has never been seen before, the most hated, most flawed, and thus most shorted stocks would be crashing far worse than the broader market.

Well, no. Because here, once again, we get a great lesson in practical liquidity management.

As the margin calls start to trickle in - and just wait until 3 pm when it will be a full blown margin call massacre - hedge funds are forced to release margin. They do that by covering all those stocks which they and their peers entered en masse as the most shorted hedge fund names.

End result, the most shorted names are now unchanged for the third day in a row even as the S&P has been in virtual free fall mode, confirming that paradoxically in this broken market, it is the scariest places that end up being the safest. Alternatively, it means that when the real liquidations begin, it will be the highest quality stocks that will get butchered, just as seen in today's market.