Short Squeeze Stocks What are they?
What is short-interest?
Short-interest is the percentage of shares that are held short against a company and is the opposite of holding or being long shares. When you are short a company you want the stock price to go down. When you are long a company you want the stock price to go up.
Why does short-interest matter?
Playing with short-interest stocks is a dangerous game as they are highly volatile and risky. You should also remember that if a large fund is heavily short a company then they have done their extensive due diligence. They probably do not believe the company's business model is a successful one or they don't believe the company will remain solvent in the long-term.
Short interest stocks usually have the potential to "short squeeze", which is based on the liquidity of the shares available for trade. For example, if the short interest on a stock is 25% of all shares available for trade then a large move to the upside might cause the shorts to cover their positions. In this case they need to buy back shares in a low-liquidity environment, causing the share price to rocket up.
When looking for short-interest plays it's very important to find companies where business is turning around for the better. If these companies can prove to Wall Street that fundamentals and cash flow are changing in a positive way, then a squeeze is almost imminent. This is one of the main reasons why Gamestop (GME) was able to squeeze as much as it did. It was the perfect combination of high short interest, near zero liquidity because of how much it was shorted, and a turn-around story as Ryan Cohen took the reins over the company.
It can be difficult to scour the Internet for the list of short-squeeze plays that are currently available. That's why we added the to the SwaggyStocks website. We track mentions across various stock market forums and channels that relate to the short-squeeze and various other terms that go along with it. Be smart and save time using professional social tracking tools all available on the SwaggyStocks website. Similarly, check out our that displays the top stocks mentioned on WallStreetBets.
Risks with short interest names
There are several risks when playing high-short interest names. The first is the fact that they can continue to bleed as the company becomes more and more shorted and investors exit their positions. This next part is speculation and can't be proved, but it's possible funds that are highly short a name can also use various strategies that bring the share price down on low volume days.
Another risk that is often over-looked is with what happens after the company experiences a large move to the upside (aka the squeeze). You should remember that in most cases these companies are struggling with cash flow, margins, and profitability. If the share price goes up to a point where management believes they are over-valued then there is a high chance the company will do an offering to dilute the stock and raise some capital. Often times this is event provides shorts with enough liquidity to exit their positions and the stock price drops. This was seen with both AMC, and PROG, which were highly shorted names that exploded in share price recently, but then management diluted shares at the expense of the retail investor.