Ackman’s flaky Fannie short

More pain for short-sellers. The latest rally in Fannie Mae (FNM) and Freddie Mac (FRE) brings the stocks back to their levels of July 10, when hedge fund manager William Ackman has said he began shorting the mortgage giants. Fannie traded around $15 Monday after briefly trading above $18, and Freddie was above $9 after earlier breaking $10 for the first time in almost two weeks.

The latest installment of what has become a four-day-long rally comes after Ackman proposed a restructuring of the companies that would wipe out shareholders and told CNBC he had begun betting against shares of Fannie and Freddie. Ackman made those comments last Tuesday - the day when the latest plunge in the mortgage companies’ shares bottomed out ahead of an announcement by Securities and Exchange Commission chief Chris Cox that the agency would restrict short-selling in Fannie, Freddie and 17 other big financial stocks. Since then, the financial stocks have surged, with Fannie and Freddie doubling off their July 15 lows. Moreover, Monday’s moves put shares in both companies in line with their highs of July 10 - meaning that any short positions in them are, for now, out of the money.

Of course, Ackman is unlikely to care whether his short is in or out of the money a week and a half later. The debate over the solvency of the mortgage giants and other big financial firms will almost surely play out over months and years rather than weeks. Still, it’s remarkable that in the space of just three weeks, Freddie’s shares have have plunged into the low single digits and then back again - while average daily volume for the month has soared to 139 million shares, from 11 million last month.