By: Spencer Israel
One of the risks of shorting stocks is the short squeeze, when longs gang up to drive asset prices higher forcing shorts to cover their positions at losses.
That appears to be happening right now.
A number of stocks with the highest short interest—that is, the percent of its float that is currently sold short—have been ripping higher in recent days.
(It’s worth pointing out that short interest data is notoriously murky and can vary by source. FINRA requires brokers to report short-selling activity twice monthly. In between those reporting dates, short interest is like tracking a moving target).
The leader of this move is GameStop (GME). According to research firm S3 Partners, the video game retailer has an estimated short interest of 58%, meaning short sellers are currently short more than half the company’s tradable shares.
And yet, despite that outsized bearish bet, shares of GME are on fire. In the last 52 weeks, the stock is up nearly 500%, and on Wednesday alone it rose from $20 to $31.
Wednesday’s short squeeze came two days after the company announced that Ryan Cohen, the co-founder of Chewy (CHWY) who holds a 13% stake in the company, would join its board to help the company focus on its e-commerce efforts. Should this news be considered bullish? Sure. But it’s not bullish enough to justify a 50% move in two days—hence the short squeeze.
And then there’s FuboTV (FUBO). The streaming service saw its stock run from $12 in late-October to $62 in late-December, only to come crashing down to $24 after the new year. However, since January 4 the stock has run back up to $35, a 50% move in a little over a week.
Undoubtedly, the stock got way overdone in Q4. But it also has an estimated short interest of 33% according to S3. Those shorts that rode the wave down in December and early January are getting dragged back out to sea again.
Clovis Oncology (CLVS), GSX Techedu (GSX), Virgin Galactic (SPCE), Corbus Pharmaceuticals Holding (CRBP), and Gogo (GOGO) all seem to fit this theme as well. They all have an estimated short interest between 30-70%, and all have traded higher by at least 13% in the last week.
Of course, the granddaddy of short squeezes for the moment is Tesla (TSLA), which burned short sellers to the tune of $40 billion in losses last year.
The author has no positions in any of the stocks mentioned.
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