One trading technique is buying short squeeze stocks. Here is what a short squeeze stock is and what a short squeeze is.
When you short a stock, it means that you expect to make money from a drop in the price of a stock. Technically what happens is that you borrow shares of a stock, sell those shares, then buy back those shares at a hopefully lower price so that those shares can be returned. Of course, this all happens electronically, you don't actually see all the borrowing and returning of shares; it just shows up on your computer screen as a negative number of shares.
Short sellers can make a lot of money, but sometimes when the stock moves against them, the stock starts to move up, and the short sellers jump in at once to buy shares to cover their position. This is called a short squeeze. When a short squeeze takes place, it can cause the stock to rise fast and hard. Any type of positive news can trigger the short squeeze.
So other traders take advantage of this situation buy looking for stocks to buy that may have a potential short squeeze. Here is what they look for:
- Short Percentage of Float ~ The float is the number of freely tradable shares and the short percentage is the number of shares held short divided by the float. Amounts over 10% to 20% are considered high, and potential short squeeze plays.
- Short Ratio / Days to Cover / Short Interest Ratio -This is probably the most important metric when looking for short squeeze trades, no matter what you call it. This is the number of days it would take the short sellers to cover their position based on the average daily volume of shares traded. This is a significant ratio as it shows how "stuck" the short sellers are when they want to buy in their shares without driving up the price too much. Unfortunately for the shortsellers, the longer the number of days to cover, the bigger and longer the squeeze.
- Short Percentage Increase ~ This is the percentage increase in in the number of short sellers from the previous month.
|Stock||Symbol||Short Interest||Days To Cover|
|Rex Energy Corporation||REXX||43%||7.7|
|CARBO Ceramics Inc.||CRR||43%||9.7|
|EP Energy Corp||EPE||42%||7.1|
|Basic Energy Services, Inc||BAS||41%||7.9|
|Chesapeake Energy Corp.||CHK||37%||8.6|
Beware of the risks. For other stock ideas, check out many of the free stock lists at WallStreetNewsNetwork.com.
Disclosure: Author did not own any of the above at the time the article was written.