While symbolizing one of the riskiest mechanisms to acquire profits in the capital markets, targeting short-squeeze stocks can sometimes yield tremendous returns. That’s because these short-squeeze candidates play on the emotion of panic; that is, bullish contrarians attempt to drive prices of heavily targeted securities higher, thus panicking the bears.
Traditionally, the way market gamblers identify stocks to buy for a short squeeze is to pull up screeners that filter for equities that have higher-than-average short interest relative to their float. Recently, one popular platform is Fintel’s Short Squeeze Leaderboard. However, for this article, I’m going to consider a different approach.
Rather than identify short-squeeze stocks based on the traditional pathway, I’m going to consider equities that have aggressively bearish sentiment in their options order flows. In this case, we’re talking about companies that have attracted institutional bears.
That should give you more breadth in terms of rewards. However, be prepared for hefty losses. If you can handle the pressure, these are the short-squeeze candidates to consider.
Palantir Technologies (PLTR)
Moving heartily into triple-digit percentage gains since the January opener, Palantir Technologies (NYSE:PLTR) might not seem an ideal play for stocks to buy for a short squeeze. Then again, investors of all stripes may be at least tactically worried about holding the bag. After all, since the mid-June session, the net performance result has been flat to negative.
Notably, Fintel’s screener for options flow – which filters exclusively for big block trades likely made by institutions – reveals heavy volume for bearish transactions. In particular, on the Oct. 20 session, a trader (or traders) bought 2,833 contracts of the Jan 19 ’24 17.00 Put, paying a premium of $253,000 for the privilege. At the time of the transaction, PLTR featured a spot price $16.12.
As well, there are many other high-volume bearish transactions at much lower strike prices, including sold contracts of the Jan 17 ’25 10.00 Call. The idea of targeting PLTR as one of the short-squeeze stocks is that if shares rise higher, these bears may have to close out their positions, possibly sending the price higher.
SoFi Technologies (SOFI)
To be clear, I’m not a big fan of SoFi Technologies (NASDAQ:SOFI), at least from a tactical perspective. Thanks to certain vulnerabilities – such as participating in the underwriting of a disappointing initial public offering (IPO) – SOFI seems questionable, to say the least. Nevertheless, I also respect that it’s one of the most heavily traded and followed securities.
So, it’s not out of the realm of possibility that SOFI ranks among the short-squeeze candidates. Per Fintel’s options flow screener, while institutional investors have bought into SOFI’s recent market weakness, many others are also bearish. Last week on two separate days under heavy volume, traders sold (wrote) call options for the Nov 3 ’23 7.50 Call.
That implies the bears believe SOFI will drop meaningfully below $7.50 instead of rising higher. However, if SOFI finds some bullish support, the pessimists heavily exposed to these bearish transactions may need to close out. And one way to accomplish this task is to buy call options.
If so, that could yield huge returns. Again, I’m personally against the idea. Nevertheless, SOFI does offer potential as one of the short-squeeze stocks.
Snap (SNAP)
With so much focus on the controversial business moves impacting Meta Platforms (NASDAQ:META) and X, the company formerly known as Twitter, Snap (NYSE:SNAP) has almost become an afterthought. A youth-oriented platform, I’ve long criticized that it lacks the maturing relevance of say Facebook. You can legitimately use Facebook to build your network and perhaps land a job. I’m not sure you can do that with Snap’s Snapchat app.
Unsurprisingly, investors aren’t all that impressed with SNAP stock, having moved up marginally since the January opener. Likely in part of this dynamic, the pessimists have taken notice. According to Fintel’s options flow screener, SNAP has attracted heavy bearish activity among institutional investors. In particular, on Oct. 16, a trader (or traders) sold 10,332 contracts of the Apr 19 ’24 13.00 Call.
From a face-value interpretation, this trade implies that SNAP will not come close to the $13 strike price. That’s a bold bet considering that at the time, SNAP traded for around $9.73 per share, only 34% away from being in the money.
So far, the bears have it right. But a favorable catalyst could blow up this short position, making it oneo f the short-squeeze stocks to consider.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
