The stock market might feel like it is range bound, but it has risen recently. Even a small gain can raise the chances of squeezes that can punish short sellers.
Betting on stock declines by borrowing shares and selling them, hoping to buy them back at a lower price, can yield big gains. But it carries some unique risks, including the danger that prices can rise unexpectedly -- and substantially -- as short sellers buy to close their bets. Such gains can force other short sellers to do the same, sending prices spiraling higher, as losses become too painful to bear.
S3 Partners, which tracks data on short selling, recently identified 18 stocks with perfect so-called squeeze scores of 100. The "Squeeze Score overlays the significant components for a squeeze, higher financing costs and unrealized losses," wrote Ihor Dusaniwsky, S3's managing director of predictive analytics in a Wednesday report.
Higher financing costs, making it more expensive to hold borrowed shares, add to the chances that traders will want to exit their bets. Mounting unrealized losses on short positions can have the same effect.
Stock volatility and whether trades are crowded, with most market participants positioned the same way, factor into the scores as well.
Dusanisky's 18 with a 100 score are as follows: Coinbase $(COIN)$, CarMax $(KMX)$, GameStop $(GME)$, MicroStrategy $(MSTR)$, AMC Entertainment $(AMC)$, TG Therapeutics $(TGTX)$, Upstart Holdings $(UPST)$, Carvana $(CVNA)$, Marathon Digital $(MARA)$, Riot Blockchain $(RIOT)$, Rocket Companies $(RKT.UK)$, Novavax $(NVAX)$, EVgo $(EVGO)$, Arcutis Biotherapeutics $(ARQT)$, Desktop Metal $(DM)$, Tellurian $(TELL)$, Sana Biotechnology $(SANA)$ and UWM $(UWMC)$.
With $2.7 billion worth of stock sold short, according to S3's data, Coinbase has a short interest of almost 25% of total shares available for trading. The $2.7 billion tops the list in terms of total dollars bet against a stock.
Riot Blockchain shares are up 116% over the past month, generating the biggest unrealized losses for short sellers. That compares with respective gains for the S&P 500 and Nasdaq Composite of 7% and 8%.
As for financing, it costs about 238% annually to borrow AMC shares, according to S3. That means that a short seller who borrowed $100 of AMC stock and sold it short would have to pay the owner roughly $300 if they kept that position for a full year.
While a high squeeze score doesn't guarantee a stock will rocket higher, it is an indication that it could. It's a danger signal for short sellers.