The stock market continues weighing the latest CPI and PPI data against next week’s September FOMC Meeting. Does this higher inflationary trend signal a much larger rate hike than initially anticipated?

There’s a bit more information to go off of now that the PPI report was published. It showed, for now, things might have started settling down for the producer side of the equation. Whether you’re trading penny stocks or higher-priced stocks, this information is helpful in formulating your investing strategy.

The interesting part about times when the stock market is down is that traders begin hunting for new opportunities. One of the areas of interest is stocks with higher short interest. The biggest reason is what can happen if the bearish stock market sentiment turns aggressively bullish. In cases like that, certain beaten-down stocks can experience short squeezes. I’ll explain the framework of this phenomenon at the end of this article. We’ll discuss what shorting is and why a short squeeze can present opportunities for traders.

For now, we look at a handful of penny stocks that fit these essential criteria. They are ones that mom-and-pop retail traders are following in the stock market today. Once you’ve read through the details, you can then decide if they’re worth placing on your list of penny stocks to buy or if you should avoid them entirely.

Penny Stocks To Buy [or avoid]

1. Eos Energy Enterrpises Inc. (EOSE)


Overall, energy penny stocks and the industry have gotten a recharge this week. But it isn’t just traditional oil or natural gas. Renewable and sustainable energy has also received a nice boost thanks to things like the Inflation Reduction Act and new comments from President Joe Biden motioning to enhance EV infrastructure.

The US President is set to hit the Detroit Auto Show and is anticipated to announce the first installment of federal funding for expanding the EV charging network. Biden is expected to approve the first $900 million from the infrastructure to build chargers across more than 50,000 miles of the national highway system.

Eos Energy specializes in zinc-powered energy storage systems. Despite its focus on industrial and residential customers, the bigger picture of clean energy was highlighted during mid-week trading. Eos Energy’s Znyth battery was designed to outperform lithium-ion technology, which has become a favored go-to for related segments, including EVs.

Should EOSE be on the list of penny stocks to watch for a short squeeze? According to data from outlets including Fintel.IO and TDAmeritrade, the current EOSE stock short float percentage is sitting between 13.16% and 20.88%.

2. FuboTV Inc. (FUBO)


If you’re familiar with our articles about short-squeeze penny stocks or stocks with unusual activity, FUBO stock is something you are probably also familiar with. The sports entertainment streaming and gambling company has turned heads in the market recently amid the launch of the new NFL season and the surge in sports betting activity.

[Read More] Penny Stocks To Buy: 3 Short Squeeze Stocks To Watch Right Now

Earlier this month, FuboTV launched its Fubo Sportsbook across New Jersey, allowing anyone over 21 to wager on live and future professional and out-of-state collegiate sporting events. Scott Butera, president, Fubo Gaming, explained earlier this month, “As one of the largest and most established sports betting markets in the U.S., New Jersey will allow Fubo to analyze and efficiently develop the most engaging product features that are focused on driving streaming customers into wagering.”

Momentum continues building throughout September for multiple reasons, including the latest sportsbook news. This has prompted more bullishness in the FUBO stock options market as Call volumes pick up for September 16 expiration Call options. In addition, traders are following the penny stock closely regarding its current short interest. Fintel & TD peg this between 26.47% and 27.92%.

3. Applied Optoelectronics (AAOI)


Applied Optoelectronics is no stranger to speculative trading activity. It remains on the list of penny stocks to watch with unusual options activity. In the stock market today, the October 21st $2.50 Call options gained the most attention for having traded over 1,500 contracts compared to only six contracts in Open Interest.

The fiber-optic access network datacenter solution provider hasn’t published much news since reporting Q2 earnings last month. However, that hasn’t put the brakes on stock market momentum in AAOI stock. The company reported revenue of over $52 million and a loss per share of 28 cents. The company anticipates doing more than that in revenue for Q3 on a similar net loss in a range of $0.27 to $0.32.

Company CEO Dr. Thompson Lin explained, “Despite the supply chain challenges, we are encouraged by the continued robust demand in the CATV market and improved conditions in the telecom market. We continue to see good customer traction with our 400G products, and we have received nearly $5 million in orders already. We expect that 400G revenue will begin to ramp up in the second half of this year as we begin to increase production volume.”

Some of the largest institutional owners, as reported in recent 13Fs, include funds like Ameriprise Financial, Vanguard Group, BlackRock, and Millennium Management. Is this why attention has centered around AAOI stock? While that’s yet to be seen, short interest has recently become a point of focus. The figure sits between 15.21% and 15.71%, according to Fintel & TDAmeritrade data.

4. Plby Group Inc. (PLBY)


Earlier this year, we published the article Will PLBY Group, Inc. (PLBY) Be On Your List Of Penny Stocks In 2022? At the time, PLBY stock traded around $7 and since then has slipped into the penny stock range. Some unusual options activity put PLBY stock back on the watch list for some traders last week.

The company has worked toward reclaiming some of what it lost after reporting mixed earnings and an unclear outlook from CEO Ben Kohn. “The macroenvironment is posing many challenges, however, we are encouraged by continued growth at Playboy and Honey Birdette, along with recent creator success we are seeing on Centerfold…As headwinds increased, we pivoted quickly, reducing non-core costs while remaining focused on our long-term plan to build out our ecosystem, leveraging the strength of our Playboy brand.”

The media company, well-known for its mansion parties, magazine, and digital entertainment, has only seen share price shedding. That exact instance may have attracted the attention of traders looking at potential short-squeeze stocks. According to data from Fintel & TDAmeritrade, the PLBY stock short float rests between 18.88% and 19.57%.

What Is Shorting?

If you’re new to trading, you might want to know the significance of stocks with high short interest. The first step is understanding what shorting is and how it factors into the “squeeze” part of a short squeeze.

[Learn More] Penny Stocks To Buy, How To Find Them & Make Money in 2022

Shorting involves selling shares that a trader borrows from their broker. These traders profit when stocks drop, and to do that, they want to repurchase shares at a lower price when it comes time to return their loans. The lower the price, the more money they get to keep from the initial stock sale. For example, ABCD stock is trading at $100 per share, and a short seller expects it to drop in price.

They would borrow ten shares of ABCD stock from their broker, sell them at $100, and now they have $1,000 available. In this example, ABCD stock drops to $90, and the trader is satisfied with this move. They would then go back into the market, repurchase the ten shares (for $900), return the borrowed shares, then pocket the difference to make a $100 gain on that short sale.

What Is A Short Squeeze?

A short squeeze is a short trader’s worst nightmare and happens when the stock price climbs instead of falls. These bearish traders must return borrowed shares to “cover” their loan. In the cases of AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME), two of the most notable short squeezes in recent history, anyone betting against them had to scramble to buy back the shares they borrowed at likely much higher prices than expected.

This is why shorting involves unlimited loss potential and has been why some hedge funds have shut down because of the blows delivered by some of the most epic squeezes like AMC and GME.

In our example, if ABCD stock jumps to $120 instead of drops to $90, the short trader has to repurchase shares 20% higher than where they sold them (at $100), and instead of pocketing a $100 gain, the trader is out $1,200. This short-cover buying adds to the already bullish buying of retail traders and can result in a massive surge in stock price within a short period. The risk to consider with short squeezes is that they can implode just as quickly as they explode.

For this reason, short-squeeze stocks aren’t for the timid. The first place to find penny stocks like these is to find ones with higher short interest.

List Of Penny Stocks In This Article

  1. Eos Energy Enterrpises Inc. (NASDAQ:EOSE)
  2. FuboTV Inc. (NYSE:FUBO)
  3. Applied Optoelectronics (NASDAQ:AAOI)
  4. Plby Group Inc. (NASDAQ:PLBY)

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