S3 analyst looks at factors that will eat into that profit
As the broader stock market has been on a tear for about a month, things are looking grim for investors with big short positions in stocks like AMC Entertainment Holdings Inc. and GameStop Inc., and one analyst has listed the “most squeezable” of those stocks.
With that in mind, Ihor Dusaniwsky, head of predictive analytics at financial technology and analytics firm S3 Partners, compiled a list of those most vulnerable stocks, headed by such names as AMC AMC, GameStop Inc. GME, Coinbase Global Inc. COIN and CarMax Inc. KMX.
Over the past month, the Dow Jones Industrial Average DJIA has gained 5.4%, the S&P 500 index SPX has gained 6%, and the tech-heavy Nasdaq Composite Index COMP has grown 7.1%.
One factor that is also killing profits for short sellers is the borrowing costs on stocks that no one is willing to part with, and the stock that figures highest on that list is AMC.
For AMC alone, short sellers must pay a whopping 238% premium in borrowing fees to short, but that’s mostly because there is no stock to borrow.
“Short sellers want to short the stock, but they are not able to get a stock borrow locate and therefore cannot execute their short on the street,” Dusaniwsky told MarketWatch in an interview. “But, when any stock borrows become available — lenders, brokers know they can charge inflated fees as there is huge demand for the name.”
“In this case there is an AMC–[preferred stock] APE APE arbitrage trade that will be profitable if the conversion occurs soon because the high financing costs are eating into those expected profits every day, including weekends,” Dusaniwsky said.
Other stocks having those mad borrow rates are Marathon Digital Holdings Inc. MARA at 18.1%; GameStop at 11.6%; Carvana Co. CVNA at 10.8%; and Riot Platforms Inc. RIOT at 5.8%. Additionally, surging prices are eating into profits, with Riot shares having soared 133% over the past month, while Marathon has gained 48.5% and GameStop has risen 29%, versus AMC shares, which have slipped 0.7% over that time period.
That jump in price puts those shorting Riot down about 80% on their bet over the past 30 days, while those shorting Marathon are down 59%, Carvana’s mark-to-market profits are off 29%, and GameStop is down 26%, along with Coinbase.
Most short interest money is tied up in Coinbase, with short interest of $2.71 billion, followed by CarMax with $1.8 billion shorted, GameStop with $1.32 billion, AMC with $749 million shorted, Riot with $438 million short and Carvana with $485 million shorted.
Other well-known stocks that are close to being squeezable, but not quite there yet, are World Wrestling Entertainment Inc. WWE with $797 million shorted, Cinemark Holdings Inc. CNK with $394 million, Paramount Global PARA with $2 billion and Lyft Inc. LYFT with $547 million shorted, according to Dusaniwsky.