Gamma-squeeze stocks represent the equivalent of the panic associated with contracting to sell a car to a buyer at a specific date in the near future but not having ownership of the vehicle just yet. Behind the scenes, you’re still working out the details of getting the car to sell. Suddenly, a shift in the market occurs and the price of the vehicle jumps higher.
Because you’re contractually on the hook for selling the car to the buyer at a near-term date at a previously agreed-upon price, you’re in deep trouble if the price keeps marching higher. At some point, you’re going to need to cut your losses because no law exists that limits the price of a car. It’s whatever the market will bear (no pun intended).
So, if you’re the seller of the car, you’d be panicked right? That’s exactly the case with gamma-squeeze stocks.
Typically, traders sell (write) call options and collect premium for the troubles. With sold calls, the risk is if the underlying security blows past the listed strike price. In that case, the call writer has the obligation to fulfill the contract (i.e. buy the stock). If you don’t have the stock – that is, you sold naked call options – you are, you know, in trouble.
Here, we care about the fundamentals but not excessively. It’s mostly relying on the tactic of panic. If that sounds intriguing, below are the gamma-squeeze stocks to speculate on.
Gamma-Squeeze Stocks: Nutrien (NTR)
Since the start of the year, Canadian fertilizer company Nutrien (NYSE:NTR) dropped more than 21% of value in the charts. So, it’s understandable why many traders would want to sell NTR call options. You can collect a premium under the assumption that shares will continue to fall lower and lower. And you can assume that until you no longer can’t.
Some high rollers are finding out the hard way. According to Fintel’s options flow screener – which exclusively focuses on big block trades likely made by institutions – in late October, major traders sold thousands of contracts of calls expiring on Nov. 17, with strike prices ranging from $62 to $65. Open interest for these calls remains elevated, implying vulnerability and thus candidacy for gamma-squeeze stocks.
Now, at time of writing, NTR closed Tuesday at $56.30 after having gained nearly 4%. Something extraordinary would have to happen to hit the low end of the strike price range. Still, it’s not out of the question.
Vista Outdoor (VSTO)
An outdoor sports and recreational products specialist, Vista Outdoors (NYSE:VSTO) has been all over the map this year. Sure, it’s up almost 5% since the January opener. However, around the middle of last month, VSTO absolutely cratered. Again, we don’t really care so much about why it fell when it comes to gamma squeeze stocks. The main point is, traders speculated bearishly against VSTO and it might go bad.
Sure enough, on Oct. 16 following the dramatic implosion of Vista, an institutional trader (or traders) sold 506 contracts of the Nov 17 ’25.00 Call. As well, on Nov. 7, another trader (or the same ones – we just don’t know) sold 500 contracts of the Dec 15 ’23 25.00 Call. Combined, both of these calls have thousands of contracts in open interest, translating to vulnerability to a gamma squeeze.
Here’s the critical part. On Tuesday, VSTO gained over 6% of equity value, closing at a price of $26.03. That means that as I write this, both of these calls are in the money (ITM) for the buyer. So, VSTO moves any higher, watch for the panic to erupt.
Air Products and Chemicals (APD)
Since the beginning of the year, Air Products and Chemicals (NYSE:APD) – which specializes in selling gases and chemicals for industrial uses – has had a rough outing. It got worse recently. Again, we don’t care too deeply about the reason. However, Morningstar was kind enough to report that the company missed its third-quarter sales forecast. Okay.
Here’s the point: some institutional investors apparently saw little reason to believe that APD could pop back higher based on the bad print. So, two days after the earnings disclosure, a major party sold 1,598 contracts of the Nov 17 ’23 270.00 Call.
Uh oh. Houston, we have a problem. Open interest for this call stands at 2,267 contracts, making it one of the cynically compelling gamma-squeeze stocks. Additionally, APD popped up almost 5% in the trailing five sessions to reach $268.41 on Tuesday’s close.
In other words, the call writers are feeling the heat with the option so close to ITM for buyers. If APD gets another good move up, the writers may need to cover. And that could send shares skyrocketing.
Corteva (CTVA)
An agricultural chemical and seed company, Corteva (NYSE:CTVA) commands significant relevance for the global food supply chain. I think we can all agree on that point. However, Wall Street doesn’t like CTVA, sending it down more than 21% since the January opener. It’s been ugly recently, with the company posting an earnings loss as sales slipped, per MarketWatch.
I care but I don’t care when it comes to gamma-squeeze stocks. Not to be flippant but the point here is the tactical environment. Prior to the earnings disclosure, institutional investors – per Fintel’s options flow – had enough. Notably, on Nov. 6, major entities sold 1,063 contracts of the Dec 15 ’23 55.00 Call.
Heading over to TipRanks, we see a big problem here. Open interest for this option stands at 2,980 contracts. That means CTVA has a month to go ITM and it just might do that. On Tuesday, shares gained over 2%, reaching $46.28 at the close.
Can CTVA dead-cat bounce nearly 19% in a month? It’s a possibility as others will be watching their screeners for gamma-squeeze stocks.
Toast (TOST)
An intriguing company that incurred some controversies earlier this year, Toast (NYSE:TOST) specializes in cloud-based restaurant management software. Again, not that we care too much from a tactical perspective but circumstances have been challenging for the consumer economy. So, it’s not terribly surprising that TOST lost more than 16% since the January opener.
Subsequently, it’s also not shocking to find that institutional traders appear to have placed bearish bets against TOST. So, on Nov. 8, Yahoo Finance reported that Toast missed its Q3 sales targets, sending shares down 13%. In response, on Nov. 10, institutional investors sold 3,340 contracts of Dec 29 ’23 14.00 Call. At the time, it seemed a reasonable wager.
But get this – these speculators underwrote the risk when TOST stock was around $14. That’s gutsy to sell an at-the-money (ATM) option! And it’s going bad. On Tuesday, TOST gained almost 7%, moving it to $14.71.
Open interest for this call stands at 3,344 contracts, implying huge vulnerability for the bears. Watch this one as it could fly higher in the near term.
Nabors Industries (NBR)
A global oil and gas drilling contractor, Nabors Industries (NYSE:NBR) seemingly offers a relevant business. With geopolitical forces pushing up the price of hydrocarbon resources, NBR seems a grand opportunity. That’s not what Wall Street believes, sending shares down almost 33% since the January opener. However, that opens Nabors’ candidacy for gamma-squeeze stocks to consider.
For whatever reason, NBR has been volatile in the trailing month, losing almost 20% of equity value. Subsequently, institutional investors may have gotten cold feet last month, selling hundreds of contracts of the Dec 15 ’23 Calls with strike prices of $120 and $130. As of the close of Nov. 14, the options chain reveals that most of these contracts are still in the open interest category.
To be fair, NBR closed at $95.66 on Tuesday, Therefore, we’ll need to see a significant move higher in the next month for this trade to spark panic. Still, on Tuesday, NBR popped up nearly 4%. In the trailing five sessions, it soared 6%.
Hasbro (HAS)
A popular toy manufacturing company, Hasbro (NASDAQ:HAS) should enjoy consistent demand. Unfortunately, that’s just not the case. Per a CNBC report last month, publicly traded toymakers forecast a lackluster holiday season. In turn, HAS lost more than 27% of equity value since the beginning of the year. Under this context, it wasn’t shocking that options traders decided to scalp a quick “bear” trade.
Sure enough, Fintel’s options flow data shows that on Tuesday, major entities sold a consider volume of Nov 17 ’23 45.00 Call options. However, the issue is that the traders underwrote the risk when HAS was trading in the open market at $45.16. The reason speculators do this is because selling near-expiry options – all other things being equal – yield limited premiums (rewards).
To ramp up the reward, speculators will buy near-ITM (or in this case slightly ITM). However, with HAS gaining over 5% on Tuesday, this trade might go bad. Certainly, the next few sessions will be nerve-wracking for the bears.
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.
