Few other phenomena scare bearish traders than an unexpected momentum shift that forces an awful decision, thereby imbuing the concept of short-squeeze stocks with unignorable leverage. After all, when bulls get things wrong, they generally risk their principal. In contrast, the bears risk their principal and then some. Since securities can rise indefinitely, pessimists face (theoretically) unlimited losses.
To better elucidate the psychological dynamics associated with short-squeeze stocks to watch, I crafted a baseball analogy on my website, Upper Deck Options. To give a brief description, imagine a starting pitcher that’s throwing a great game. Suddenly a series of bad events occur and now the pitcher faces a terrible dilemma: walk the dangerous hitter and load the bases or engage a high-pressure duel?
For both traders and pitchers, the main goal regarding a great situation turned bad is to get out of the inning unscathed. Of course, that’s easier said than done. And when momentum shifts, the opposing bats (the bulls in this analogy) start to wake up.
In other words, an awful game or publicly traded company can see its fortunes reverse on a contrarian opportunity. And that’s the power of these short-squeeze stocks to watch.
Sonic Automotive (SAH)
At the moment, Sonic Automotive (NYSE:SAH) – an auto dealership – carries a consensus hold view among Wall Street analysts. It’s also symmetrically balanced: two buys, two sells, with an average price target of $58.25, indicating about a 12% return over the next 12 months. Frankly, it’s understandable why SAH doesn’t get much love. With inflation and interest rates skyrocketing, demand for high-ticket items faces severe challenges.
In turn, it’s also not surprising that SAH has attracted the bears. Presently, SAH’s short interest stands at 18% of its float. As well, the short-interest ratio is moderately elevated at 7.59 days to cover, according to data from Fintel. Generally, short interest above 10% is fairly high while anything above 20% is extremely so.
Fundamentally, though, SAH makes a case for short-squeeze stocks to watch. As I’ve mentioned before, the average age of passenger vehicles hit a record 12.5 years in 2023. However, all cars break down at some point. Theoretically, then, demand could flow into Sonic Automotive.
Trupanion (TRUP)
Based in Seattle, Washington, Trupanion (NASDAQ:TRUP) provides pet insurance, specifically for cats and dogs. As we all know, Americans love their four-legged friends. Therefore, it’s not a shock to see that analysts rate TRUP a consensus moderate buy. They also anticipate shares hitting $36.83 on average, translating roughly to 38% upside potential.
That’s the good news. However, the not-so-pleasant side is that TRUP lost more than 41% of equity value since the January opener. As a result, the embattled enterprise caught the attention of market pessimists. Per Fintel, TRUP features a short interest of 33.92%, which is staggeringly high. Additionally, the short interest ratio clocks in at 13.81 days to cover.
Interestingly, though, TRUP has been on the run. In the trailing month, it gained almost 18% of market value. Looking at options flow – which exclusively filters for big block transactions likely made by institutions – bearish traders bought up large volumes of puts.
Thus, it’s possible that contrarians are attempting to blow up this short position. Certainly, it’s one of the short-squeeze stocks to watch.
HighPeak Energy (HPK)
Not much is known about HighPeak Energy (NASDAQ:HPK) – at least from mainstream investors’ perspective – which also makes HPK an intriguing gamble due to the underlying inherent volatility. According to its website, HIghPeak is an independent oil and natural gas company engaged in the acquisition, development, and production of hydrocarbons. As an upstream player, it’s relevant given geopolitical circumstances.
Unfortunately, relevance alone offers no guarantee of positive market returns. In HighPeak’s case, its shares hemorrhaged 30% of equity value since the start of the year. That’s the equivalent of chumming the waters and thereby attracting the sharks. Per Fintel, HPK runs a short interest of 33.76% of its float. It also prints a blistering short interest ratio of 24.97 days to cover.
At the same time, the contrarian bulls want to go all Chief Brody on the pessimists. Shares have been steadily picking up in the past six months, which may be a reverse harbinger. As well, an institutional trader sold $10 puts expiring January next year, implying a floor at that price.
Blink Charging (BLNK)
From a long-side perspective, Blink Charging (NASDAQ:BLNK) undoubtedly appears like sunk money. Indeed, that word triggers a warning – the sunk-cost fallacy. Basically, you don’t want to put good money into bad in the hopes of a turnaround that might never materialize. Looking at the charts, you can see that BLNK suffered a loss of almost 67% of equity value. Ouch.
As you might expect, that’s a lot of chumming in dangerous waters. Sure enough, the telltale fins have started to torpedo their way to the beleaguered electric-vehicle charging infrastructure provider. Per Fintel, BLNK’s short interest stands at 30.82%. Its short interest ratio is 2.48 days to cover but let’s not kid ourselves: this is wildly risky speculation.
Nevertheless, what’s intriguing here is the dramatic 51% return over the past one-month period. Looking at options flow data, we discover both nearer-term and longer-term sold calls that risk getting blown up. Put another way, we have gamma-squeeze or gamma-squeeze-like conditions at play. As speculation, this is one of the short-squeeze stocks to put on your radar.
Skillz (SKLZ)
In arguably most contexts, Skillz (NYSE:SKLZ) should be a decisive winner in the market, not one of the short-squeeze stocks to watch. An online mobile multiplayer video game competition platform, Skillz aligns strongly with the tastes of its core young consumer market. After all, we’re living in a paradigm where the Olympics features an esports competition.
Unfortunately, that alone hasn’t helped SKLZ. Since the start of the year, shares tumbled 39%, worrying longtime stakeholders. In the past 52 weeks, the security dropped 67% of equity value. Given this context, it’s no shock that SKLZ runs a short interest of 19.44% of its float. Its short interest ratio is more modest at 5.2 days to cover but it’s still relatively elevated.
However, in the past month, SKLZ returned more than 26% for speculators. Looking at the underlying options flow data, it’s difficult not to notice a barrage of sold calls. Effectively, these transactions represent wagers that SKLZ will not rise to specific strike prices before expiration.
Still, the bulls are calling out the bears on this trade, making it one of the short-squeeze stocks to watch.
Groupon (GRPN)
Moving onto possibly the last two riskiest ideas based on fundamental relevance, Groupon (NASDAQ:GRPN) should be heading to the trash heap. With all due respect, the global e-commerce marketplace – which connects subscribers with local merchants offering discounts – offered tremendous relevance back before social media took off and fostered direct connections between companies and their customers.
Sure enough, GRPN shed more than 83% of equity value in the trailing five years, demonstrating the extreme risks involved. With the bears not impressed, GRPN’s short interest clocks in at 28.88% of its float. About the only “good” news is that the short interest ratio isn’t that high at 3.22 days to cover. Still, Fintel states GRPN represents one of the most heavily shorted securities.
However, the contrarians want to send the message that you can’t have too much of a good thing. In the trailing half-year period, Groupon shares skyrocketed nearly 120%. Based on Fintel’s options flow screener, it seems the bulls are aiming to blow up the sold calls. Technically, then, GRPN is one of the short-squeeze stocks to watch.
VinFast (VFS)
I just got done covering the news about Vietnam-based EV manufacturer VinFast (NASDAQ:VFS). Generally speaking, investors are avoiding shares like the plague. Aside from a stratospheric pop that briefly materialized following its initial public offering, VFS has lost about 84% of value. Obviously, that’s not the debut that VinFast wanted to achieve.
Unsurprisingly, the institutional bears view VFS as a means to scalp some negative profits. That’s done through buying puts – directly betting that shares will decline – and selling calls or collecting a premium in the anticipation that VFS won’t rise beyond a certain point. In terms of hard numbers, VFS runs a short interest of 27.56% of its float.
However, Wedbush analyst Dan Ives pounded the table on VinFast to the shock of many. Indeed, the Wedbush team went to see the company’s manufacturing facility in person, coming away deeply impressed. Combined with the desire to blow up the bears, VFS could be intriguing for the ultimate speculator. Still, as disclosure, don’t expect me to join in on the fun.
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.