{"id":32166,"date":"2012-09-07T15:18:56","date_gmt":"2012-09-07T19:18:56","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/09\/finding-potential-short-squeezes-for-big-profits\/"},"modified":"2012-09-07T15:18:56","modified_gmt":"2012-09-07T19:18:56","slug":"finding-potential-short-squeezes-for-big-profits","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/09\/07\/finding-potential-short-squeezes-for-big-profits\/","title":{"rendered":"Finding Potential Short Squeezes for Big Profits"},"content":{"rendered":"

Article by Investment U<\/a> <\/p>\n

Most of you buy stocks. You hang on to them for anywhere from a few minutes to a few decades. You hope they\u2019ll go up and then you sell for a profit. Buy low, sell high\u2026 that\u2019s what we\u2019ve been taught.<\/p>\n

But there are other investors who do the opposite \u2013 they sell high and buy low. Sounds similar, but it\u2019s a very different strategy. It\u2019s known as shorting stock. A short seller sells the stock first and buys it back later. If the stock is bought back at a lower price, the investor makes money.<\/p>\n

Here\u2019s how it works\u2026<\/p>\n

Let\u2019s say an investor shorts 100 shares of Facebook<\/strong> (Nasdaq: FB) at $18.<\/p>\n

If he buys Facebook back at $12, he\u2019ll make $600, because he bought it at $12 and sold it at $18, even though he did it in the reverse order.<\/p>\n

However, if Facebook rallies to $24, he\u2019ll lose $600. He\u2019ll have bought the stock at $24, but sold it at $18.<\/p>\n

Remember, though, the sale took place first<\/span>.<\/p>\n

In order to sell a stock that an investor doesn\u2019t have, he has to borrow it from his broker. Sometimes, stock isn\u2019t available to borrow, in which case the investor can\u2019t short the stock.<\/p>\n

It\u2019s an aggressive strategy, one that has unlimited<\/em> risk.<\/p>\n

Think of it this way: When an investor buys a stock, the most he can lose is the amount invested. The stock can\u2019t go below zero. However, a shorted stock can go up indefinitely. Imagine what an investor would have lost if he shorted Apple<\/strong> (Nasdaq: AAPL) at $30?<\/p>\n

How to Profit From a Short Squeeze<\/strong><\/h2>\n

Shorting is a way to take advantage of a stock that falls in price. But because of the extra risk, it\u2019s not for everyone.
\nHowever, investors who are bullish on a stock can take advantage of short sellers in a move that\u2019s known as a \u201cshort squeeze.\u201d<\/p>\n

When a stock that\u2019s heavily shorted starts to rise, existing shorts \u201ccover\u201d or buy the stock back to avoid suffering big losses.<\/p>\n

That extra buying by short sellers covering their positions leads to more demand for the stock and pushes it north in what\u2019s known as a short squeeze. Investors who own a heavily shorted stock that gets squeezed sometimes find themselves with a stock moving sharply higher.<\/p>\n

Here\u2019s a recent example.<\/p>\n

Repros Therapeutics<\/strong> (Nasdaq: RPRX) is a small-cap biotech company. Over 20% of Repros\u2019 float is sold short. That\u2019s a huge percentage.<\/p>\n

So last week, when Repros\u2019 stock was moving higher, it\u2019s very likely that shorts started covering their shares, pushing the stock even further skyward\u2026<\/p>\n

\"\"<\/p>\n

Above is a chart of Repros. Look what happened on August 30th<\/sup>.\u00a0 There was no news on the stock that day, but as the stock advanced, buyers piled in, moving the price well above $12.\u00a0 Because there were so many shorts in the stock, it is likely that some of them bought back shares to close their position and limit their losses, which added fuel to the fire.<\/p>\n

Today, the stock continued to advance above $14. The stock is up nearly 40% in five days \u2013 again on no news. That\u2019s likely a short squeeze.<\/p>\n

When I was an analyst at a contrarian research firm, the only stocks any of us were allowed to put a \u201cBuy\u201d rating on were those with at least 10% of the float sold short. It was a way of stacking the odds in our favor so that if the stock did start rising, there was another source of demand to push it still higher.<\/p>\n

Let\u2019s take a look at a few stocks that could squeeze the shorts if they get going in the right direction:<\/p>\n

iStar Financial<\/strong> (NYSE: SFI), which offers financing to the commercial real estate industry, has 21% of its float sold short. The stock is near the top of its yearlong range. If it breaks out above $7.75, you might see short covering that would propel the stock higher.<\/p>\n

\"\"<\/p>\n

Movie theater chain Regal Entertainment Group<\/strong> (NYSE: RGC) has a whopping 32% of its float sold short. That means one out of every three shares have been shorted.<\/p>\n

Here\u2019s an interesting figure \u2013 nearly 26 million shares of Regal have been shorted. Yet the stock only trades about a million and a half shares a day on average. What happens if the company has a strong earnings report or the stock makes a new high on its own?<\/p>\n

\"\"<\/p>\n

With Regal also close to its 52-week high, a breakout could fuel a wave of short covering. And considering that 17 times the average daily volume has been sold short, it wouldn\u2019t take that much short covering to ignite the stock higher.<\/p>\n

Understanding the forces that can push a stock higher increases your chances of success. And when you own a stock, there\u2019s nothing more satisfying that squeezing someone\u2019s shorts. Well, you know what I mean.<\/p>\n

Good Investing,<\/p>\n

Marc<\/p>\n

Editor\u2019s Note: <\/strong>In the premium edition of today\u2019s newsletter, Marc tells a select group of our readers about one of his favorite short squeeze candidates. It\u2019s the stock of a small biotech firm with a 13.5% short float, which he\u2019d be happy to own regardless of whether the short squeeze comes to fruition.<\/p>\n

In fact, he told me its cash flow and profits are projected to grow 48% per year over the next five years. For more information on Marc\u2019s recommendation today and how to upgrade your subscription for just $5, click here<\/a>.<\/p>\n

\n<\/a> <\/a> <\/a> <\/a> <\/a>\n<\/div>\n

<\/p>\n

Article by Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

Article by Investment U Most of you buy stocks. You hang on to them for anywhere from a few minutes to a few decades. You hope they\u2019ll go up and then you sell for a profit. Buy low, sell high\u2026 that\u2019s what we\u2019ve been taught. But there are other investors who do the opposite \u2013 … <\/p>\n

Continue reading “Finding Potential Short Squeezes for Big Profits”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-32166","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/32166","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=32166"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/32166\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=32166"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=32166"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=32166"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}