These Are the 5 Most Shorted Stocks in the S&P 500 Index. The Bears Are Wrong About 1 of Them.

With the S&P 500 now up more than 23% this year, some investors are eyeing individual names in the broader benchmark index that look overvalued and might be at risk of correction. These select investors hope to enact a short sale that can help them access outsized profits.

Shorting is a standard practice typically seen on Wall Street when investors or firms borrow shares at a certain price and then immediately sell the borrowed shares in the market. These investors hope the share price drops so they can repurchase the shares for less and then return them to the borrower, pocketing the price difference for themselves as profit. For some, shorting is viewed as a villainous practice. For others, it's considered a healthy part of a free market that prevents valuations from getting too frothy.

Shorting can be risky if not hedged properly. Stocks can, in theory, rise to infinity, so investors who bet wrong can lose their shirts if the stock price keeps going up. Retail investors monitoring their portfolios should take notice if one of their stocks has a big short position against it. Seeing one may suggest they reexamine their thesis on the stock and double-check that they are not missing anything.

Here are the five most shorted stocks in the S&P 500. Most are on this list for good reason, but the bears are wrong about one of them.

Super Micro Computer (NASDAQ: SMCI), the designer and manufacturer of computer servers and storage systems, has slightly more than 21% of its available shares sold short -- the highest in the S&P 500, according to StatMuse. Like most great stocks this year, Super Micro has been a huge beneficiary of the artificial intelligence boom. Companies running machine learning and other types of AI models use Super Micro's computers and storage systems for storing the massive quantities of data required to make AI possible. Its stock price is up 66% this year.

However, a firm with a reputation for shorting stocks, Hindenburg Research, issued a short report against Supermicro in August, alleging accounting improprieties that Supermicro says are false or inaccurate. The Securities and Exchange Commission did charge the company with "widespread accounting violations" back in 2018. Super Micro saw its valuation balloon earlier this year to close to 93 times earnings, but it now trades at about 24 times earnings.

Close to 16% of the float is being sold short on the cloud-based human resource platform Day Force (NYSE: DAY). The stock is down more than 4% this year. Day Force is a software-as-a-service company that helps companies manage all aspects of human resources, from payroll to benefits to hiring. The company trades at a big valuation of more than 210 times earnings and 35 times forward earnings, well ahead of peers.