Tag: short selling

NYSE Stocks with the Highest Short Interest for Short Squeeze Plays

by Fred Fuld III

Have you ever wondered why stocks that are heavily shorted can spike up in price so much?

When you short a stock, it means that you plan to make money from a drop in the price of a stock. Technically, what happens is that you borrow shares of a stock, sell those shares immediately, then buy back those shares at a hopefully lower price so that you can return those shares. This all happens electronically, so you don’t actually see all the borrowing and returning of shares; it just shows up on your screen as a negative number of shares.

Short sellers can make money, but sometimes when the stock moves against them, and begins to rise, the short sellers jump in fast to buy shares to cover their positions, creating what is called a short squeeze. When a short squeeze takes place, it can cause the share prices to increase fast and furiously. Any positive news can trigger the short squeeze.

Some traders utilize this situation by looking for stocks to buy that may have a potential short squeeze. Here is what a short squeeze trader should take into consideration:

Short Percentage of Float ~ The float is the number of freely tradable shares and the short percentage is the number of shares held short divided by the float. Amounts over 10% to 20% are considered high and potential short squeeze plays.

Short Ratio / Days to Cover / Short Interest Ratio -This is probably the most important metric when looking for short squeeze trades, no matter what you call it. This is the number of days it would take the short sellers to cover their position based on the average daily volume of shares traded. This is a significant ratio as it shows how “stuck” the short sellers are when they want to buy in their shares without driving up the price too much. Unfortunately for the shortsellers, the longer the number of days to cover, the bigger and longer the squeeze.

Short Percentage Increase ~ This is the percentage increase in the number of short sellers from the previous month.

The following are some heavily shorted stocks that may be worth considering.

CompanySymbolShort InterestShort % ChangeShort Interest Ratio
Fisker IncFSR47.28%13%3.8
Carvana CoCVNA40.04%-11%3.9
C3.ai IncAI38.08%-2%4.3
Kohl’s CorporationKSS27.11%8%5.4
Cinemark Holdings, Inc.CNK26.53%-1%9.4
IONQ IncIONQ26.22%2%5.4

The fourth stock on the list, Kohl’s (KSS) has over 27% of its float shorted, an increase of 8% over last month.

The short interest ratio is 5.4, which means that it would take the short sellers over five days to cover their position, based on recent average volume.

Cinemark Holdings (CNK) is another stock that is heavily shorted with over 26% now short with almost no change in short interest from the previous month.

The short interest ratio is 9, which means that it would take the short sellers over nine days to cover their position, based on recent average volume.

Just keep in mind that just because a stock has good ratios and is heavily shorted, doesn’t mean that the stock will go up, especially in a bear market. Also, stocks that are significantly shorted may be shorted for a reason.

Disclosure: Author had no positions in any of the above at the time the article was written.

5 Stocks with Short Interest Over 40%: Possible Short Squeeze Plays

by Fred Fuld III

Did you know that at one point, GameStop (GME), the high flying meme stock, had 140% of its total outstanding shares shorted, according to the book, The Antisocial Network (now republished as Dumb Money).

It is possible for a stock to have a short interest exceeding 100% of its outstanding shares. However, this is relatively rare and can occur due to several factors:

1. Naked Short Selling: This illegal practice involves selling borrowed shares without first locating them. While most brokers have safeguards to prevent naked short selling, it can still happen, especially with less-regulated stocks. In such cases, the number of shorted shares can temporarily exceed the number of outstanding shares.

2. Share Lending and Relending: When shares are borrowed for short selling, they can be re-lent to other short sellers multiple times. This can create a situation where the total number of shorted shares appears to be more than the number of outstanding shares, even though no naked short selling has occurred.

3. Synthetic Short Positions: These positions involve using derivatives like options or futures contracts to mimic the effect of short selling. While not directly borrowing shares, these positions can still contribute to the overall short interest and push it above 100%.

It is probably the lending and relending that contributed the most to GameStop short interest going over 100%.

A short squeeze is a phenomenon that occurs in financial markets when investors who have sold shares of a stock short (i.e., betting that the stock price will fall) are forced to buy those shares back at a higher price than they expected. This can happen when the stock’s price rises sharply, causing losses for short sellers who need to buy the stock to cover their position and limit their losses.

As more and more short sellers try to buy the stock to close out their positions, this increased buying activity can drive the stock price even higher, creating a feedback loop that can lead to a rapid and dramatic increase in price. This can create a challenging situation for short sellers, who may be forced to buy back the stock at a loss, or risk even greater losses if the stock continues to rise. A short squeeze can also create opportunities for long investors who have purchased the stock, as they may be able to sell their shares at a higher price to short sellers looking to cover their positions.

When you short a stock, it means that your goal is to make money from a drop in the price of a stock. Technically, what happens is that you borrow shares of a stock, sell those shares, then buy back those shares at a hopefully lower price so that those shares can be returned. This all happens electronically, so you don’t actually see all the borrowing and returning of shares; it just shows up on your screen as a negative number of shares.

Short sellers can be profitable, but sometimes when the stock moves against them, and begins to rise, the short sellers jump in right away to buy shares to cover their positions, creating what is called a short squeeze. When a short squeeze takes place, it can cause the share prices to increase fast and furiously. Any good news can trigger the short squeeze.

Some traders utilize this situation by looking for stocks to buy that may have a potential short squeeze. Here is what a short squeeze trader should take into consideration:

Short Percentage of Float ~ The float is the number of freely tradable shares and the short percentage is the number of shares held short divided by the float. Amounts over 10% to 20% are considered high and potential short squeeze plays.

Short Ratio / Days to Cover / Short Interest Ratio -This is probably the most important metric when looking for short squeeze trades, no matter what you call it. This is the number of days it would take the short sellers to cover their position based on the average daily volume of shares traded. This is a significant ratio as it shows how “stuck” the short sellers are when they want to buy in their shares without driving up the price too much. Unfortunately for the shortsellers, the longer the number of days to cover, the bigger and longer the squeeze.

Short Percentage Increase/Decrease ~ This is the percentage increase in in the number of short sellers from the previous month.

The following are some heavily shorted stocks that have short interest above 40%.

CompanySymbolShort InterestFloatOutstdS. I. Ratio% chg from prev month
Fisker IncFSR47.28%199.17M218.20M4.54%
Novavax IncNVAX43.94%111.96M118.79M6.58%
Upstart Holdings IncUPST41.91%72.37M85.06M3.5-1%
Beyond Meat IncBYND40.09%60.86M64.54M8.2-5%
Carvana CoCVNA40.04%94.11M106.54M4.38%

The second stock on the list, Novavax (NVAX) has almost 44% of its float shorted, with an 8% increase in short interest over last month.

The short interest ratio is 6.5, which means that it would take the short sellers over six days to cover their position, based on recent average volume.

Just keep in mind that just because a stock has good short interest ratios and is heavily shorted, doesn’t mean that the stock will go up, especially in a bear market.

In addition, the short positions and other data can change at any time.

Also, stocks that are significantly shorted may up being just lemons.

Disclosure: Author didn’t own any of the above at the time the article was written.

Get Income on Penny Stocks that Don’t Pay Dividends

by Fred Fuld III

Yes, you read that heading correctly. You can own penny stocks that don’t pay dividends or even regular stocks that don’t pay dividends, and still get income from them.

And for stocks that do pay dividends, you can increase your income from them.

I’m not talking about writing options. I’m not talking about selling off some of your shares.

What I am talking about is something called the Fully Paid Lending Income program which most major brokerage firms offer. It is a way of making money off traders who  sold shares of a stock short .

Fully Paid Lending Income (FPLI) is a type of income that investors can earn by lending their fully paid securities to other market participants, such as hedge funds or other traders, who want to short sell the securities.

When investors lend their fully paid securities, they earn interest on the loan, which is referred to as FPLI. The interest rate is determined by market forces and may vary based on factors such as the demand for the security, the supply of available securities to lend, and the length of the loan period.

The process of FPLI works as follows: An investor with fully paid securities can lend them to a borrower through a lending agent, such as a broker-dealer or a custodian bank. The borrower then sells the securities on the market with the hope of buying them back later at a lower price. If successful, the borrower returns the securities to the lender, who earns interest on the loan.In summary, FPLI is a way for investors to earn additional income on their fully paid securities by lending them to other market participants who want to short sell the securities.

So you are probably wondering, can you really make any money from Fully Paid Lending? The answer is yes, and I’m talking from personal experience.

I recently called my broker about another issue relating to dividends, and as we were going through the income on my account, I noticed income of $164 listed as Miscellaneous. I asked the customer rep what that was and he told me that’s the fully paid lending income.

So I started to look back at previous months.

The following is an example from last month from my Roth IRA at TD Ameritrade. (Confidential information has been redacted.)

The dollar value of this stock during this time was around $8,000 and you will notice that the collateral at month-end was zero, which means that my shares were not borrowed for the entire month.

In spite of that, my stock generated over $164 for the month. That works out to 2% for just one month. Not too shabby for a stock that sells for around $4 and doesn’t pay a dividend. And if you annualize it…..

Now you are probably wondering, is this a one shot deal that you might get for only one month out of the year? The answer is no. Since December of last year, I have received over $100 every month.

Here is another example from January.

You can see that the same stock that generated $164 last month brought me $336 in January.

Let’s assume conservatively that this stock generates $150 per month. That’s $1800 per year, and for $8000 worth of stock, that’s a 22.5% return!

Considering that I originally bought the stock for just capital gains, this additional income is a nice bonus.

Now for the downside. You will notice that I had a second stock in January, which only generated six cents in lending fees. That can happen.

Sometimes you don’t make much and sometimes you don’t make anything on your stockholdings, but when you do, the income can be fairly high depending on if the stock is hard to borrow.

Be aware that you are not automatically enrolled in this program. You need to contact your broker, fill out some forms (which might need to be physical forms instead of electronic), and then wait a couple days for it to be activated.

I could not find any disadvantage to the program, although there are some basic requirements. I can sell my stock at any time. You can enroll both a regular account and an IRA account.

The way I look at it, I have nothing to lose and the possibility of a lot to gain. Especially with the low priced stocks.

Here’s to getting additional income on your stock portfolio.