Are penny stocks with high short interest something that you’re looking for? This trend has become increasingly popular this year, thanks to retail traders. What began as a “fight against the hedgies” has rapidly evolved into something all its own. Massive breakouts from GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) stoked the fire at the beginning. The idea was that mom and pop traders were coming together to go against the grain of Wall Street’s “norm,” and the Hedge Funds taking extreme steps to keep down companies by shorting them.
If you’ve seen the movie, The 300, this is the best way I can explain the sentiment in the market when it came to the first round of meme stocks. As the year has gone on, this idea of “short squeeze” has evolved from teaching hedge funds a lesson to simply taking advantage of a unique market situation.
In this article, I’ll answer the question, “what is a short squeeze,” and discuss a few penny stocks with high levels of short interest based on the percentage of their public float.
What Is A Short Squeeze?
A short squeeze usually happens when a higher level of short-sellers have positions in a stock and then get forced to cover their short because share prices are rapidly rising unexpectedly. Since shorting involves borrowing shares from a broker that need to get returned, share prices don’t matter as this is a loan of stock.
That stock needs to get repaid no matter the price. If you’re selling short, you’re hoping that the stock price falls so that you can repurchase shares at lower prices, return the share, and pocket the difference in the price you sold short and the price you repurchased.
When a squeeze triggers, the unexpected and rapid rise in share price effectively signals that short sellers need to cut their losses. As more retail buying blends in with short covering volume, prices tend to compound to the upside quickly, and thus, we see parabolic moves in the market. It happened with AMC stock, GME, BBIG, and most recently with CEI stock (though a short report sparked a massive sell-off this week).
How to make money with a short squeeze?
If you’re looking to take advantage of a short-squeeze, make sure you understand how to trade volatile stocks. Since prices can spike quickly, you want to be ready to set and execute your profit targets in real-time. These aren’t usually for a passive trader.
The idea is to benefit from the quick surge in unexpected momentum, make your profit and either play the next trend after an expected pullback or move onto the next trade. Making money with short squeeze stocks is generally the same as making money with any other stock. The main difference is moves come much quicker.
Short Squeeze Penny Stocks To Buy Under $5 [or avoid]
Something to keep in mind is that nothing is a guarantee that a squeeze will happen. Just because a penny stock has a higher short interest, it won’t “ultimately” squeeze. There are plenty of other factors that need to be in motion, including market activity. So for this list of penny stocks, we’ve got three under $5 with high percentages of the float, short. Will they be the best to buy now, or should you avoid them entirely?
Future FinTech Group (NASDAQ:FTFT)
Financial technology stocks are red hot this year. Whether we’re talking about cryptocurrency stocks, blockchain technology stocks, NFT stocks, or something in between, this is a hot niche in the stock market today. Future FinTech specializes in blockchain-based e-commerce and financial technology services.
Recent News From FTFT & Short Info
Last month Future FinTech made headlines after inking a deal to buy a money payment service company, Khyber Money Exchange Ltd. The agreement further extends Future’s fintech reach both for its business platform and its geographic reach.
“Our objective is to become a diversified fintech enterprise that leverages current opportunities and integrate them into a comprehensive business platform, and to create a company that can meet customers’ current financial needs as well as positively disrupt the traditional banking sector to launch innovative products and services.”Shanchun Huang, Chief Executive of Future FinTech
Even with this milestone, short interest has increased in FTFT stock. The news last week of a mixed shelf offering up to $200 million also brought about some bearish sentiment that the company could raise funds, which could lead to dilution. Nothing more has been discussed by the company since then. But as of September 15th, the most recent short data report shows FTFT stock with a short float percentage of roughly 16.5%.
Ziopharm Oncology (NASDAQ:ZIOP)
Other than short squeeze stocks, insider activity is another trend retail traders are following right now. Ziopharm has both of these going for it right now. This week Director Jamie Vieser reported the purchase of 100,000 shares at an average price of $1.91. Thanks to that, bullish sentiment has built in the market at the start of the week.
The company specializes in, you guessed it, oncology treatments. In particular, it develops T-cell receptor (TCR) therapies based on its viral “Sleeping Beauty” gene transfer platform. The first patient in its TCR-T Library Phase 1/2 clinical trial is expected to get dosed during the first half of next year.
Recent News From ZIOP & Short Info
Most of the focus on ZIOP stock right now is the restructuring process the company is going through. Roughly 60 positions have been eliminated from the company’s workforce in hopes of extending its cash runway into the first half of 2023.
Kevin S. Boyle, Sr., Chief Executive Officer, said, “We appreciate the many contributions the impacted employees made to Ziopharm, and we commit to supporting these valued colleagues during this transition. We believe today’s strategic decision was necessary to create an organization structured and staffed for success and focused on the goal of generating clinical data in our promising TCR-T Library program. I am confident in the ability of our highly talented team to execute our strategy.”
Despite this short-term concern from the market, insider buying and plans for creating this robust R&D organization to generate IP around its TCR platform are things to keep in mind if you’re following ZIOP stock. Furthermore, if you’re looking for stocks with higher short interest, this currently has a short float percentage of roughly 17.5%.
Katapult Holdings (NASDAQ:KPLT)
Another one of the beaten-down penny stocks in the stock market today is Katapult Holdings. The company went public earlier this summer but hasn’t been able to reclaim its IPO high. Mixed earnings results and declining margins were some of the core points of focus for sellers at the time. But is the retail solutions technology company completely done?
Recent News From KPLT & Short Info
KPLT stock managed to recover slightly from hitting its 2021 low. However, recent news last week and new analyst coverage have made it apparent that the company continues in its pursuit to build its newly public business. Last week, Katapult announced a lease-purchase solution through integration with Salesforce Commerce Cloud.
This effectively allows retailers an ability to deliver unified experiences for customers going beyond commerce. According to the company, this includes marketing, and customer service, among other things. Adding to this, analysts, including Cantor Fitzgerald, initiated coverage on the company this week. The firm started KPLT stock at Neutral with a $6 price target.
As far as the latest short data goes, KPLT stock has a short float percentage of 33.91%.
Should You Look For Short Squeeze Stocks?
This is one of the areas of the stock market with much higher chances for volatility to play a leading role. While “short squeeze stocks” might breakout big, they can also come crashing down just as quickly. At the end of the day, there’s a reason why certain investors are selling short, and many times it has more to do with than “getting back at retail traders.” Regardless, however, if you understand how to buy penny stocks the right way and know how to navigate high volatility trading, then stocks with higher short interest could be something to get more insight on.