While the concept of short-squeeze stocks has been all the rage throughout most of the pandemic-disruption cycle, we may have been doing this all wrong. Rather, it’s time to address this speculative practice under a three-dimensional lens.
First, market gamblers shouldn’t just focus on short interest as a percentage of float. Don’t get me wrong. Whenever short interest hits 10% or close to it, that’s an elevated reading. And when this metric runs above 20%, we’re talking about a security that has attracted extreme bearish interest.
However, we must also consider the short interest ratio or the days to cover. This metric tells us – given average volume levels – how many days it would take for bearish traders to unwind their positions. Obviously, the higher the short interest ratio, the more pressure is on the bears if their trades move against them.
But there’s also a third indicator and that comes from the options market. If you see a combo of high short interest and high days to cover and options dynamics that may exacerbate the underlying panic, you’ve got yourself three-dimensional short-squeeze stocks.
Theravance Biopharma (TBPH)
What it is: A biotechnology firm, Theravance Biopharma (NASDAQ:TBPH) focuses its research efforts on the areas of inflammation and immuno-oncology.
Relevance: According to data from Fintel, TBPH features a short interest of 43.16% of its float. Also, its short interest ratio clocks in at 14.58 days to cover. Per the investment resource’s proprietary Short Squeeze Score, it ranks as number 77 out of 4,420 of the most-shorted securities. Further, options flow data indicates rising demand for the Mar 15 ’24 10.00 Call.
Takeaway: Effectively, because institutional investors are long TBPH (for the aforementioned $10 call), market makers on the opposite side of the trade are short shares (because they sold the calls). Thus, the closer TBPH gets to the $10 strike price, the more pressure there is on the market makers to cover their short position.
Risks: While Theravance may be relevant scientifically, over the past five years, it’s been incredibly volatile. Thus, it’s a risky idea for short-squeeze stocks.
PAR Technology (PAR)
What it is: From its LinkedIn profile, PAR Technology (NYSE:PAR) is a leading global provider of software, systems, and service solutions to the restaurant and retail industries. It’s been on the move recently, possibly making it an attractive idea for short-squeeze stocks on momentum.
Relevance: PAR features a short interest of 14.91% of its float. Also, its short interest ratio comes in at 14.91 days to cover. Based on the proprietary Short Squeeze Score, it ranks as number 248 out of 4,420 of the most-shorted securities. In addition, options flow data shows increased demand for selling the Jan 17 ’25 45.00 Call.
Takeaway: Basically, we have an opposite situation in the derivatives market compared to Theravance Biopharma. With institutional traders selling $45 call options, greater pressure exists among the big dogs to cover their positions. In part, that’s because call holders can exercise their options anytime before expiration.
Risks: PAR has already performed so well. As a result, upside potential may be limited.
Omeros (OMER)
What it is: Based in Seattle, Washington, Omeros (NASDAQ:OMER) is a biopharmaceutical company that discovers, develops and commercializes small-molecule and protein therapeutics for large-market and orphan indications.
Relevance: OMER features a short interest of 21.4% of its float. As well, its short interest ratio lands at 20 days to cover. Based on the proprietary Short Squeeze Score, it ranks as number 231. It also features a Short Squeeze Score of 82.33 (out of 100), indicating a higher probability of a short squeeze materializing. Further, options flow data shows increased demand for selling the Feb 16 ’24 5.00 Call.
Takeaway: While OMER faded badly since early June of this year, shares have printed a blistering performance over the trailing month. That means that while OMER is still far from reaching the $5 strike price, it’s getting closer, potentially worrying the bears.
Risks: To be quite blunt, analysts peg Omeros as a moderate sell so you don’t want to get too comfortable. So, it might only be a temporary idea for short-squeeze stocks.
Harrow (HROW)
What it is: Headquartered in Nashville, Tennessee, Harrow (NASDAQ:HROW) is a pharmaceutical enterprise. Per its public profile, it started six healthcare businesses. Currently, the company focuses on the ophthalmic sector.
Relevance: Per Fintel, HROW features a short interest of 19.86% of its float. Also, the short interest ratio comes in at 9.72 days to cover. Its Short Squeeze Score lands at 81.50, representing number 247 in terms of the most-shorted securities. Adding to the pressure, its options flow screener shows prior significant demand for sold calls, specifically the Jan 19 ’24 12.50 Call. Based on the most recent closing price of $10.66, it’s getting close.
Takeaway: Essentially, HROW bears have less than a month to hope that shares don’t hit the strike price. However, at the time of the transaction (Nov. 14), the spot price sat at only $8.29. It’s getting uncomfortable for the bears, which presents a contrarian opportunity for the bulls.
Risks: Investment data aggregator Gurufocus warns that HROW could be a possible value trap.
Trupanion (TRUP)
What it is: Another Seattle-based company, Trupanion (NASDAQ:TRUP) is a pet insurance provider. Specifically, the company focuses on cat and dog insurance in the markets of the U.S., Canada, Australia and Puerto Rico.
Relevance: Right now, TRUP prints a short interest of 39% of its float, a staggeringly high figure. Also, its short interest ratio lands at 14.47 days to cover. Fintel’s Short Squeeze Score puts TRUP at 85.87 and that ranks it 133 overall out of the most-shorted securities. Further, options flow shows big block transactions for bought puts; specifically the Feb 16 ’24 17.50 Put.
Takeaway: What’s interesting about the aforementioned puts is that between Nov. 7 through Nov. 29, major entities acquired these contracts when TRUP was exchanging hands at various spot prices. Roughly speaking, we’re talking about a range from around $21.50 to nearly $28. As of Thursday’s close, TRUP is $31.48. That means the bears risk losing their entire principal unless they want to close out early.
Risks: Trupanion faces a difficult environment in the pet products and services ecosystem. Thus, approach this idea among short-squeeze stocks carefully.
Bank of Hawaii (BOH)
What it is: A regional commercial bank headquartered in Honolulu, Bank of Hawaii (NYSE:BOH) is the state’s second-oldest bank. It’s also the largest locally owned bank in terms of state residents who own shares in the financial enterprise.
Relevance: With egg on my face, I’m going to have to cry uncle on this one. BOH’s short interest comes in at 20.58%. Also, its short interest ratio is 11.61 days to cover. Currently, its Short Squeeze Score hits 82.31, translating to number 217 out of the most-shorted securities. What may drive the contrarian bulls wild is the sold call; specifically, the Jan 19 ’24 50.00 Call.
Takeaway: At the time of the sold call (Dec. 5), BOH carried a spot price of $62.96. As of Thursday’s close, the price shot up to $72.44. Unfortunately for the bears, the situation is getting worse and worse. In the trailing month, BOH gained over 30% of equity value.
Risks: Analysts rate shares a consensus hold with a $51 price target. So, contrarians shouldn’t get too comfortable.
Arrival (ARVL)
What it is: An electric vehicle manufacturer, Arrival (NASDAQ:ARVL) focuses primarily on lightweight commercial vehicles. While it initially started off with much fanfare, ARVL is effectively on life support.
Relevance: Presently, ARVL’s short interest stands at 16.13% of its float. Its short-interest ratio is relatively elevated at 13.87 days to cover. Further, its Short Squeeze Score is 87.85 and it ranks 18 out of 4,420 of the most-shorted securities. Turning to ARVL’s options chain, there’s plenty of open interest for call options that expire on Jan. 19, 2024, with strike prices of $2.50 and $5.
Takeaway: It’s speculative but since hitting a bottom on Nov. 13, ARVL has been steadily rising higher. Will ARVL rise enough to reach $2.50, let alone $5? Obviously, that’s a bit of a reach. However, the short-squeeze speculation could skyrocket shares. If so, $2.50 might be within reach, which would alarm the market makers.
Risks: In my opinion, the terrible outlook for this pre-revenue enterprise suggests that it’s the highest-risk, highest-reward idea on this list of short-squeeze stocks.
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.