A great lesson many investors have learned in 2021 from GameStop and AMC Theatre stocks is that a short squeeze can make you quick gains. Some Reddit investors are good at seeking out the most shorted stocks that could be short-squeeze candidates.
It’s said that one man’s loss is another man’s gain and a short squeeze captures that well. A short squeeze occurs when two schools of thought in the market clash. On one side, there's a group of investors betting that a stock is going to drop and they become short sellers. On the other side, there's a group out to prove the short sellers wrong.
When there are so many short sellers on a stock, investors on the other side can squeeze them out. They start to buy the stock in large numbers and the price goes up. The rising price forces the short sellers to unwind their positions. This leads to more buying and pushes the stock up more. A successful short squeeze can lead to huge losses for short sellers, while investors on the other side profit.
How much did short sellers lose on GameStop and AMC short squeeze?
After noticing that GameStop stock had become heavily shorted, a group of retail investors on Reddit decided to coordinate a short squeeze. That caused GME stock to rise from about $10 to more than $480 in only a few trading days in January.
In May, it was AMC stock’s turn. A short squeeze coordinated on Reddit and other investor forums propelled AMC stock from under $10 to $70 in just a few trading days. After the dust settled, it’s estimated that hedge fund short sellers lost more than $10 billion in the GameStop and AMC short squeezes.
Are shorted stocks a good buy?
Short selling is a trading strategy that has led to profits for hedge funds over the years. Recently, a growing crowd of retail investors has become a powerful force against short selling. They received backing from some prominent figures. For the GameStop short squeeze, Tesla CEO Elon Musk and venture capitalist Chamath Palihapitiya cheered on the Reddit investors coordinating the campaign.
If you buy a heavily shorted stock that's popular with retail investors and it turns out to be a successful short squeeze, you could make huge profits quickly.
What are most shorted stocks now that could be short squeeze candidates?
Following the epic GME and AMC short squeezes, many investors have been inspired to seek out the next short squeeze candidate. If you have an appetite for a battleground stock, here are some of the most heavily shorted stocks now.
Big 5 Sporting Goods (BGFV)
Workhorse Group (WKHS)
Bit Digital (BTBT)
Beyond Meat (BYND)
How much is Big 5 Sporting Goods stock shorted?
Cortexyme is a biotech company developing treatments for Alzheimer's disease. It ranks at the top of the chart as the most shorted stock with a short interest of 47 percent. Big 5 Sporting Goods stock carries a short interest of 42 percent.
Why is Workhorse Group stock shorted?
Workhorse is an electric vehicle company targeting the delivery van market. Amid the rush to curb climate change, businesses in the transport and logistics sector are shifting to vehicles that run on clean energy. As a result, there's a growing demand for electric delivery vehicles. Although Workhorse has a huge market opportunity, short-seller Fuzzy Panda Research has accused the company of misleading investors. Workhorse stock carries a short interest of 37 percent.
Bit Digital is a Bitcoin mining company. It competes with the likes of Riot Blockchain and Marathon Digital. Bit Digital has a short interest of 31 percent on its stock. Meanwhile, Beyond Meat is a food processing company that supplies plant-based meat alternatives. Beyond Meat stock carries a short interest of 30 percent.