After one of the most violent and memorable short
squeezes in recent memory sent DryShips Inc. (NASDAQ: DRYS) shares soaring from as low as $3.84 to as high as $102.00 in a matter of
days, the stock has now crashed back down to earth at around $10.
Learning From DryShips
Following the DryShips reality check, short squeeze traders may be shifting their attention to a new target on Monday:
LendingClub Corp (NYSE: LC). Shares of the
battered marketplace
lending stock jumped from a session low of $5.93 to a session high of $6.16 within a matter of minutes on Monday morning
following a market rumor of a potential buyout. The stock quickly fell back to around $6.00 when there was no follow-up on the
chatter, but the move certainly caught short squeeze traders’ attention.
Short Sellers' Nightmare: The Buyout
A buyout can be a short seller’s worst nightmare. No matter how well-researched a company is or how confident a short-seller is
in the negative fundamentals or technical momentum of a stock, buyout rumors are always a dangerous wildcard.
LendingClub is one of the most popular shorts in the market today at about 17 percent short interest. Short sellers have piled
on as the company’s revenue, earnings and share price have
plummeted throughout much of 2016.
However, as DryShips taught short sellers the hard way, a surprise bullish catalyst for a heavily-shorted stock can be the
recipe for a short squeeze explosion that can make or lose a fortune in a matter of days. Traders will likely be keeping a close
eye on LendingClub for the time being.
Image Credit: By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons
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