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If you've been with me for a while, you know that my S.C.A.N. algorithm and I keep a close eye on stocks we think are most likely to be "in play" in a given week.
Now, S.C.A.N. looks for all kinds of promising options activity; it helps me make recommendations for my subscribers. But I've made some tweaks to it recently that have it looking out for what I think are the two most predictable indicators of a potential short "Super Squeeze" about to explode.
Those kinds of situations can be extremely lucrative for people on the right side of the trade because the buying can turn into something like a frenzy real fast.
Why "Super Squeeze" Situations Happen
Most folks, when they think a stock's going to go higher, up and buy the stock. When they get into trading, they may trade call options. It's even possible to sell puts, an even more potentially lucrative market strategy – Tom Gentile's got some more about that right here – where it's possible to get into great stocks, sometimes at a big discount.
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On the other hand, when they think a stock is going to go down, most folks would think to buy put options and go "short."
Well, see, there's being "short," and then there's "short-selling" – that's something a lot of regular investors and traders just don't do very often because of the theoretically unlimited risk involved. I'd even go so far as to say lots of people aren't even aware of the practice – or at least until a few weeks ago, when GameStop became a household word, sparking a massive, lucrative revolution in trading for regular folks.
Short-selling is usually something sophisticated, institutional investors get into because of that risk I mentioned, and the, shall we say, "significant" margin requirements and deep pockets needed.
I'm going to oversimplify here, but basically, a short-seller will go out and borrow the stock in hopes that it will go down in price. When the time comes to "return" the shares, they pocket the difference, which can be a pretty hefty sum.
They do this for all kinds of reasons, but sometimes, it's as simple as a hunch they've got that a troubled company's stock is going to head for $0. It's not uncommon for a "research" firm to publish what amounts to a hatchet job on a company so its trading desks can sell the stock short.
To be honest, it's not terribly transparent. On European exchanges, a hedge fund needs to disclose its short positions once they reach 0.5% of a company's share capital; here in the States… not so much. There can be a two-week lag before exchanges publish how much of whatever company's shares are "on loan." Every once in a while, the American exchanges beg the U.S. Securities and Exchange Commission (SEC) to increase transparency, but given the ferocious pushback they get from fund managers, so far, it's no dice.
With all that said, it's really easy for short-selling to go wrong in a hurry, as we saw with GameStop Corp. (NYSE: GME). If there's significant, upward buying pressure on a stock, whether that's from a positive business development, or in the case of GameStop, an almost militant mania for buying the stock, those short-sellers will have to "cover" their positions fast – they cover them by buying the stock, which drives the price up more, which forces other short-sellers to cover and buy, which drives the price up, which attracts other buyers with "FOMO," which drives the price up…
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Everyone's got a different pain point, and not every short-seller will move to cover at the first sign of buying – some hedge funds covered their GameStop shorts at $90, others significantly higher – but sooner or later, when a "Super Squeeze" breaks out, they all cover and buy.
So you can see a "Super Squeeze" is a fast spiral of buying; a chain reaction. And of course, if you're long at the beginning, you stand to bag big, rapid profits from these kinds of events.
And if you're trading the right kind of options on the stock, those profits can potentially be extraordinary.
These Shares Have "Super Squeeze" Potential
Now, I have to save my trading research recommendations for my Super Squeeze Profits subscribers, but here are three stocks I think look like promising that anyone might consider going long over the coming week or so. Make sure you've got speculative capital set aside for this and you're comfortable with and aware of your risk tolerances here.
Bed Bath & Beyond Inc. (NYSE: BBBY) is a very big, very troubled national retailer of products folks can use in bed, the bath, and, I guess, beyond. My point is, the fundamentals aren't the most important thing right now. BBBY is one of the new "meme stocks" the Reddit crowd is backing in its never–ending battle against the big guys on Wall Street. This has led to some significant yo-yoing in the share price over the past few weeks. Some of my screens indicate "Round II" could be just about to start – watch this one.
Weibo Corp. (NASDAQ: WB) isn't too well–known here outside of tech circles, but it's pretty much a household name in China, where it's one of the biggest social media networks. Its American Depositary Receipts (ADRs) trade right here in the United States on the Nasdaq exchange. U.S.-listed Chinese firms have been feeling the heat for the past few months; there's a constant threat of delisting, which would hammer the shares. At last report, around 14% of WB shares are "on loan," which means short-sellers are a significant force here. But the stock has continued to rise, which tells me a "Super Squeeze" could very well break out here.
UTZ Brands Inc. (NYSE: UTZ) makes a helluva good potato chip out on the East Coast, but the stock has been more or less flat lately. Short interest is north of 5.7%, around 3 million shares. Given this company's tendency to beat earnings – next report comes in mid-April – I think the shorts are ultimately going to get burned here and be forced to cover. Be there when that happens.
Now, if you're a Super Squeeze Profits subscriber, sit tight – my latest research recommendation with specific instructions will hit your inbox shortly. On the other hand, you can always go right here to learn how to subscribe. The "Super Squeeze" has become the market's hottest trade, and I think there could be some great opportunities out there. This is nothing less than a trading revolution, happening right in front of us, now that regular investors have figured out how to turn the tables and use Wall Street's own strategies against them.
About the Author
Andrew Keene, editor of the 1450 Club, Super Options, and Project 303 at Money Map Press, is a globally known trader and a renowned expert on all things options.