The Reddit Euphoria Trade

So, earlier today I was asked for my opinion on what could be next for the reddit group and thereby due for a huge short squeeze. Obviously it is tough to know for sure but let’s look through what we know so far. 

First, the reddit group “wallstreetbets” targeted the short positions of the hedge fund Melvin Capital. In the most recent filing, Melvin Capital had the following short positions (listed in order of size in their short portfolio and by ticker symbol)…

  1. GSX
  2. MLM
  3. LGND
  4. GME
  5. FIZZ
  6. BBBY
  7. ELAN
  8. IRBT
  9. OLLI
  10. IRM
  11. TRN
  12. VIAC
  13. HASI
  14. DDS
  15. SKT

It appears not only did the group target Melvin Capital initially, but they also wanted Melvin Capital positions with the highest levels of short interest as a percentage of float. They also looked at small cap stocks. So, the top short interest as a percentage of float positions in the Russell 2000 are…

  1. GME
  2. FIZZ
  3. DDS
  4. MAC
  5. BBBY
  6. LGND
  7. ACMX
  8. SRG
  9. GOGO
  10. SPWR
  11. AXDX

So, look at those two lists we can see GME, FIZZ, DDS, BBBY, LGND on both lists. Unfortunately, those have already been targeted. So, not sure how much is left in the tank for them.

Where could these folks go next? Knowing where they are going before it is widely public is going to take some speculation. My next stop was to look for the high short interest stocks. For this I visited a website that’s tough to remember for this information… (LOL).

If we look at that list, we can see the top 5 stocks are…

  1. GME
  2. SPCE (A Financial Market Analytics “On The Radar” position that’s been on the radar for two weeks… if only I unloaded on it!!!)
  3. AMC
  4. BBBY
  5. LGND

Again, all those appear to be hit. So, once again, what is the next move?

The nice part of is that it lists the Shares Outstanding and then the Float. These folks tend to (perhaps not every time) like to target companies that have a low float compared to the shares outstanding. So, if you visit the website right now, you can see the SPCE for example has 53.65M share float (shares available for trading) out of 195.59 million outstanding. Of that 53.65M share float, 81.53% or 43.74M shares are being sold short. It was a prime candidate. The low float means a ton of retail traders attacking will throw off the supply/demand setup and the price skyrockets when the shorts need to cover.

Game Stop had 69.75M shares outstanding and a float of 51.56M shares, so not as much of a disparity but 138.08% of the float was being sold short. How is that possible? It’s through tricky leverage techniques which I won’t get into here. I don’t want to type that much. Let’s just deal with the numbers. 

So, taking into account that they want high short interest combined with low float for the ideal equation, where does that leave us with stocks that fit the criteria but have not yet been hit or at least not in a material way? Granted they could have hit something, and plan to hit it, but trying to find the gem hidden out there that the leaders of the group are in the process of acquiring before they release the move to the masses.

  1. FUBO (It’s had a buy recently, but the buy did not move above the December high, so most shorts would still be holding their shorts. Why? Typically they would set their stop above the recent high, in this case $62.50. Stock only got to $57.50 today.)

  2. CLVS (It’s had a pop too, bit it hasn’t gotten above the high from the summer of just over $10. Today broke $9.50 and that was it. It does have a high float to shares outstanding, so not ideal.)

  3. OTRK (Float is less than half the shares outstanding so that’s good. Bad part is stock has moved 20% and ideally they want a cheaper per share price to attack.)

  4. SRG (High float to shares outstanding, but stock hasn’t even come close to the 2020 high just above $40. So, it would need a decent move just to squeeze the shorts. Share price is in that sweet spot at $20 right now.)

  5. RVP (Just above the December high, so it hasn’t move much. Recent volume suggests accumulation and the float is just above one third of the shares outstanding. Price is also in that sweet spot at $15.81.)

  6. PGEN (Still under December high of just over $11. Stock currently $9.28. Recent days have seen high volume suggesting accumulation. Float is less than 40% of shares outstanding which would be tempting.)
  7. RKT (Stock had a pop, but still well below all time high over $34. High float though.)

  8. REV (Low float which makes it tempting for a bigger name stock, appears to have been hit but still well under 2020 highs.)

  9. MIK (Seems like someone is accumulating, but not at a massive level yet. Low float compared to shares outstanding.)

Just some food for thought tonight! I’ll keep you posted on anything that arises of interest. Good luck in your trades!


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