Short squeezes threaten 15 stocks including AMC, Coinbase, and GameStop

There might be a feeling that the stock market is range bound, but that's not the case. Stocks have risen in recent months, and even a small gain increases the chance of severe squeezes punishing short sellers.

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The strategy of borrowing shares, selling them, and then hoping to buy them back at a lower price can be a powerful way to make money on stock declines. It also carries some unique risks, including the possibility that short sellers can buy to close their bets unexpectedly and significantly, which may lead to a substantial increase in price. In addition, short sellers who have made such gains will be forced to make the same moves, resulting in prices spiraling higher, as losses are becoming unbearable.

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It has recently been discovered that 18 stocks with perfect squeeze scores of 100 were identified by S3 Partners, a company that monitors short-selling data. As Ihor Dusaniwsky, S3's managing director of predictive analytics, wrote in a Wednesday report, "The Squeeze Score overlays the significant components of a squeeze, such as higher financing costs and unrealized losses."

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Traders may want to exit their bets if they see increased financing costs, giving them a greater incentive to sell borrowed shares for a higher price. Unrealized losses on short positions can also have the same effect on traders.

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As well as stock volatility, the level of market participation, as well as the number of trades being crowded, play a role in the scores as well.

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According to Dusanisky, the 18 companies with a 100 score are as follows: 

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• Coinbase

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• CarMax 

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• GameStop 

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• MicroStrategy 

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• AMC Entertainment 

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• TG Therapeutics 

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• Upstart Holdings 

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• Carvana 

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• Marathon Digital

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• Riot Blockchain 

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• Rocket Companies

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• Novavax 

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• EVgo 

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• Arcutis Biotherapeutics 

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• Desktop Metal

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• Tellurian

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• Sana Biotechnology

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• UWM 

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In terms of total dollars bet against a stock, Coinbase leads the list with $2.7 billion worth of stock shorted according to S3.

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Compared with increases of 7% and 8% in the Nasdaq Composite and S&P 500SPX +1.33%, Riot Blockchain shares have increased 116% in the past month, generating the biggest losses for short sellers.

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Based on the information provided by S3, borrowing AMC shares cost about 238% a year. That means that if a short seller keeps a position for a year, they would have to pay the owner roughly $300.

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The high squeeze score isn't a guarantee of a stock's future performance, but it may point to it. A high squeeze score can indicate a stock is heading for higher prices.

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