FILE PHOTO: An AMC theatre is pictured amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., January 27, 2021. REUTERS/Carlo Allegri/File Photo
June 8, 2021
(Reuters) -Shares of Clover Health Investments Corp surged as much as 109% on Tuesday as it became a new focus for small individual traders on social media platforms who have prompted rallies in heavily shorted U.S. stocks this year.
Medicare-backed insurance seller Clover was among the most shorted stocks across U.S. exchanges, with Clover being the target of a report by short seller Hindenburg in February, which took a position in the company.
“The WallStreetBets forum (on Reddit) has identified (stocks with) over 30% short interests,” said Thomas Hayes, managing member at Great Hill Capital Llc in New York.
The “meme stock” phenomenon, which began with video game retailer GameStop Corp in January and spread to cinema operator AMC Entertainment Holdings Inc in May, has prompted the U.S. Securities and Exchange Commission to say it was looking into signs of market manipulation.
Short interest in Clover Health is at 49.10 million shares, or 43.5% of the float, Ihor Dusaniwsky, managing director of predictive analytics at S3 said on Tuesday.
Short sellers were down $465 million in mark-to-market losses on Tuesday, based on a more than 80% price gain, which raised year-to-date losses to $517 million, he said.
Shorts have been building their position in Clover Health as its stock price has been rallying, Dusaniwsky said.
Clover’s backer, venture capitalist Chamath Palihapitiya, took the company public through a $3.7 billion reverse merger with his blank check firm in October 2020.
Clover’s shares were up 81.6% at $21.64 after earlier hitting a record high of $24.93.
The company’s options have drawn a surge of bullish action in recent days with trading volume surging to 587,000 contracts on Monday, compared with an average daily volume of under 50,000 contracts for the month of May, Trade Alert data showed.
Call options speculating on the stock climbing all the way to $30 were among some of the most heavily traded contracts in recent days.
‘GAMMA CALL LADDER’
Clover’s 30-day implied volatility, an options-based measure of how much traders’ expect the stock to gyrate in the near term, was at 176%, up from 93% at the end of May, according to Trade Alert data.
The massive jump in Clover shares on Monday was aided by an options “gamma call ladder” – a situation where market makers have sold a large number of call options on a string of adjacent strike prices, said Jay Wolberg, founder of Trading Volatility, a data and analytics provider focused on financial derivatives.
With the stock price creeping closer to those sold contracts, market makers are left with little choice but to buy up the stock to offset their options exposure, thereby pushing the stock higher, in what is termed a “gamma squeeze”.
“Clover was in a gamma call ladder yesterday with peak gamma at $12. Today’ peak gamma is at $16 and there isn’t much gamma between $16 and $20 to drive it higher,” Wolberg said.
With Clover options trading in heavy volume, the gamma picture can quickly change as investors take new positions.
Wendy’s was also jumping in high volume, and its shares were last up 24.1%.
GameStop, which holds its annual shareholder meeting and reports quarterly results on Wednesday, was up 4.0%.
Electric-truck maker Workhorse Group Inc shares gained 17.4%, while AMC was down 0.8%, and Carlotz climbed 23.3%.
(Reporting by Aaron Saldanha, Medha Singh and Devik Jain in Bengaluru, Saqib Iqbal Ahmed and Caroline Valetkevitch in New York; Editing by Shounak Dasgupta and Bernadette Baum/Emelia Sithole-Matarise)