You can't sell stock short specifically to passive investors. You have to sell it into the market. And since you're trying to sell only that stock and passive investors are buying the whole market your actual net counterparty is a set of some other active traders that hold the mirror position to yours, not the passive traders. The passives will always get the average of the market in that scenario and your above average returns have to come from someone else's below average returns.
I just wrote to you the same thing the parent of your post did. You are missing the part of the scenario where "everyone" except the one player is passive. Both I and the poster broke down the mechanics step by step for you...
You didn't break down anything step by step. If you actually start with an 100% passive market and try having a single active investor in it nothing works. Funds can no longer buy and sell the basket of stocks they need. At that point they'd just trade among themselves and simply not trade with you. To actually be able to trade in the way you describe you'd need a 99.9% passive market where there are still some active traders you are trading with and together you are creating tracking error for the passives siphoning off their gains, which is what I described.
