Traders have lost almost $10 billion betting against Alibaba this year (BABA)

If you're thinking about betting against Alibaba's stock, you might first consider simply lighting your money on fire.

Traders wagering on declines in the company's shares have lost a grand total of $9.8 billion in 2017, according to data provided by financial analytics firm S3 Partners. That makes Alibaba the worst-performing short in the world this year, and it isn't particularly close.

The next-most shorted company is Tesla, which has drained $4.5 billion from the accounts of bearish speculators, less than half of the damage left in Alibaba's wake.

The reason for the futility of short sellers is clear: Alibaba's stock looks like a runaway train right now, up 87% in 2017 through Thursday, roughly eight times the MSCI All-Country World Index.

In fact, short sellers have lost $2 billion this week alone following Alibaba's blockbuster earnings report, which saw the company grow earnings by 62% year-over-year, and expand revenue 56%, S3 data show.

Perhaps even more surprising than the sheer size of the loss incurred by Alibaba short sellers this year is how stubborn they've been about continuing to bet against the company. Its stock price has been on a clear ascent for basically all of 2017, showing very few patches of weakness, yet those bearish traders have continued to double down.

This may be because investors are treating Alibaba as a proxy for the whole stock market in Hong Kong and China, says Ihor Dusaniwsky, managing director of predictive analytics at S3. It's a tactic similar to one being used in the US market, which has seen traders short the best-performing stocks in the S&P 500 as a broader market hedge. After all, Hong Kong's Hang Seng index is up 23% so far in 2017.

"Short sellers are hoping that if there is stock market correction in Hong Kong/China, Alibaba will bear the brunt of the decline," Dusaniwsky wrote in a client note. "The short sellers that remain at this poker table are waiting to see if they will be riding down the river on a rowboat or a yacht."

Markets Insider