Snap's surging stock cost skeptics more than $375 million in a single day

Flickr via JDLasica

• Snap smashed its quarterly earnings report, as user growth and earnings-per-share beat analyst estimates, while the company also showed strong sales growth.
• The resulting share spike has cost short sellers more than $375 million in a single day.

It's a bad time to be betting against Snap.

Short sellers - or investors looking to profit from a stock decline - are taking a beating on Wednesday as shares spike as much as 35%. The move has cost those Snap skeptics more than $375 million, according to data compiled by financial analytics firm S3 Partners.

It's a jarring turn of events for short sellers, who had made money for the year heading into Snap's earnings report, which saw the company beat analyst estimates for user growth and earnings-per-share. Short speculators are now down more than $300 million year-to-date, S3 says.

And while Snap's strong earnings report is undoubtedly playing a role in boosting shares on Wednesday, the unwinding of short positions is also likely having an effect.

A "short squeeze" occurs when gains in a stock force bearish investors to "cover," or close their outstanding positions through the purchase of shares. That, in turn, drives further shares gains, similar to those Snap is seeing.

Despite its massive percentage gain today, Snap is still down 30% since the week of its IPO. And it's likely that bearish speculators will pile back into short positions now that the stock has more room to fall. But for the time being, the company has made fools out of traders betting on it to fail.

Markets Insider