By Noel Randewich


SAN FRANCISCO (Reuters) - The movie "Blair Witch" could be a money maker for Lions Gate Entertainment despite bad reviews of the 1999 horror reboot hitting theaters this weekend, but short sellers watching its stock rally almost 5 percent on Friday already looked scared.


A sequel to the ultra-low budget horror classic "Blair Witch Project", the newest film likely cost under $5 million to make and could gross $15 million by the end of the weekend, estimated Loop Capital Markets analyst David Miller, who has a "buy" recommendation on Lions Gate.


It may not matter that several reviews were critical of the movie.


"You don't need big stars, you can shoot it in three to four weeks and the special effects are cheap," Miller said. "And the horror crowd doesn't care about reviews."

Struggling with declining revenue, Lions Gate has seen its stock fall 34 percent in 2016, and it has become a target of traders betting on more declines.

Short selling in shares of Lions Gate increased by about $60 million in September to $539 million, almost a record high, according to S3 Partners, a financial analytics firm.

But with the stock jumping 98 cents on Friday to $21.31, some short sellers appear to be buying back shares in order to avoid more losses, S3 Partners' Head of Research, Ihor Dusaniwsky.

"Traders are being scared out of their shorts positions more than out of their theater seats," he said.

(Reporting by Noel Randewich; Editing by Bernard Orr)