In the equities world itself, the most important factor for traders looking for quick wins is probably the concentration of business reviews on Reddit’s WallStreetBets channel and other social media. But the numbers can also point to actions that can be put in place for short cuts that can be lucrative for traders with great timing.
Below is a list of stocks that can be good targets for short squeezes. Think of it as a tool that traders can use for their own research. But first, a little reminder.
Short sales and short cuts
Short selling is when an investor borrows stocks and sells them immediately, hoping to buy them back later at a lower price, return them to the lender, and pocket the difference. When the short interest on a stock is very high, short sellers have to pay high double-digit interest rates to borrow the stocks.
Hedging is when someone with a short position buys the shares to return them to the lender, to profit if the price of the shares has fallen since they were sold short, or to limit losses if they increased after being sold short.
A short squeeze occurs when many investors looking to cover short positions start to buy at the same time. The buy pushes the stock price higher, forcing short-term investors to step up their hedging attempts, causing stocks to skyrocket into a frenzy.
That’s what happened earlier this year when traders as a group decided to take on professional short sellers by buying heavily shorted stocks, most notably GameStop Corp. GME and AMC Entertainment Holdings Inc. AMC
The move has paid off for at least some of them. This year through June 17, GameStop shares had climbed 1,087%, while the company’s market value jumped to $ 16.06 billion from $ 1.31 billion at the end of 2020. ‘AMC Entertainment jumped 2,765% for 2021, while its market capitalization rose to $ 30.47 billion from $ 348 million at the end of 2020.
Both companies were able to capitalize on their newfound popularity by selling more shares to the public.
New potential short-term targets
According to Brad Lamensdorf, CEO of investment adviser ActiveAlts, buying GameStop and AMC Entertainment shares was so important that short-squeezes caused hedge funds to change their ways by reducing their use of leverage in stocks. discovered. Lamensdorf also manages and co-manages the AdvisorShares Ranger Equity Bear ETF HDGE,
which is intended to be used as a hedging tool.
Discussing his own method of selecting short-term potential candidates, Matthew Tuttle, CEO of Tuttle Capital Management in Greenwich, Connecticut, said he started with “a 10/10 rule.” This represents a short interest of at least 10% and at least 10 days required for short sellers to hedge their positions in stocks, if everyone decides to do so, based on the average daily trade volume. The days to be covered may reflect a low trading volume for a stock, creating a special opportunity for a squeeze.
Tuttle, who recently created the FOMO ETF FOMO to seek to take advantage of any market trends, including industry shifts, short cuts and the “meme stocks” phenomenon, said this is the ‘one of the “multiple screens” he does before considering buying a Stock. He also examines other factors, including the social media buzz.
Lamensdorf said it would be helpful to see a list of stocks with at least 25% short-term interest and 10 days to cover.
To build this list, we started with a group of 4,394 stocks listed in the United States and Canada of companies with a market capitalization of at least $ 300 million. Of these companies, 263 achieved Tuttle’s “10/10” threshold.
Here are the 16 with a short interest of at least 25% (rounded up) and at least 10 days to cover:
GameStop and AMC Entertainment did not make the new list. Short interest in GameStop is high at 20.96%, but it is considerably lower than the 138% as of January 26. It would now only take 1.5 days for short sellers to cover it.
For AMC Entertainment, the short interest is 22.81% and it would only take half a day to cover all the short sellers.
FactSet data on short positions as a percentage of stocks available for trading is updated twice a month, depending on when the data provider receives information from the exchanges.
On the list, you can see that some stocks have skyrocketed this year or over the past four weeks. Big wins don’t mean there can’t be another short squeeze.
GEO Group Inc. GEO,
leads the list with 35.80% short interest and 10.1 days to cover. The company operates prisons and detention centers. President Joe Biden signed an executive order to phase out federal contracts with private prison operators in January. GEO Group suspended its high dividend in April.
Canoo Inc. GOEV,
is a stock of memes that is the subject of continual discussion on social media – a factor not measured here. The electric vehicle maker was formed on December 21 through the merger of Canoo Holdings Ltd. and Hennessy Capital Acquisition Corp. IV, a Special Purpose Acquisition Company, or SPAC. Canoo plans to produce its first minivan in mid-2022, according to its 10-K report filed on March 31.
Lily: It’s the same Whac-A-Mole stock as the retail crowd goes from Petco to pickles to electric cars in two days
Tootsie Roll Industries Inc. TR,
may be a surprise to see on the list. From the numbers above, it looks like the stock hasn’t been particularly volatile this year. But it was subjected to a short squeeze in January at the height of the Reddit-induced buying mania among traders using Robinhood and other apps to try and ride the wave. However, the title quickly fell back to earth:
Tootsie Roll stock illustrates the potential for huge gains or losses for short sellers and those trying to create or profit from squeeze shorts. This can happen again for Tootsie Roll and any of the companies listed above. But you have been warned.
The list may help traders, but it only includes two of the short selling data points. Data on the cost to short sellers of borrowing stocks is not available. You can try to gauge internet chat volume for memes stocks on your own or through a service, such as HypeEquity, which tracks “social sentiment analysis,” as MarketWatch previously described.