Passionate day traders sticking to their Reddit forums have found their new favorite destination – Clover Health – which drove the stock up three digits on Tuesday.
Shares in Clover Health, a Medicare insurance start-up that went public on Chamath Palihapitiya’s SPAC, rose more than 100% on Tuesday after rising 32% in the previous session. The stock recently rose 68%.
In the midst of morning trading, Clover has already traded over 300 million shares, according to FactSet, 13 times its 30-day average volume of 22 million shares.
On Reddit’s WallStreetBets forum, which now has more than 10 million subscribers, the chatter about Clover grew. The infamous chat room was everywhere at AMC Entertainment for the past week as traders amassed cinema chain stocks and purchase options, pushing stocks more than 110% in June.
A short squeeze could be at play for Clover Health, which sells 32.7% of its float stocks short according to data from S3 Partners. That compares to about an 18% short stake in AMC. When a heavily short stock suddenly bounces high, short sellers are forced to buy back stocks and exit their short positions to reduce losses.
Reddit retailers are encouraging each other to take advantage of the huge short interest in Clover and crowd out short sellers.
“This looks like the perfect setup for a combined short and gamma squeeze. I don’t see any reason CLOV couldn’t hit the same price point as AMC last week (> $ 70). Reddit Post said Tuesday.
Earlier this year, Clover shares fell after short seller Hindenburg released a damning report calling the company a “broken deal”. Clover announced in February that it had received an investigative notice from the Securities and Exchange Commission and intended to work together.
Meanwhile, Wendy’s is also loved by Reddit traders, as stocks rose more than 15% on Tuesday alone.
The restaurant chain reported better-than-expected earnings in May and raised its forecast for the year.
GameStop, the show’s star during January’s trading mania, rose 17% while AMC Entertainment was up 6% on Tuesday.
The SEC said Monday that it is closely monitoring recent wild trade in certain stocks to determine if there has been any “market disruption, manipulative trading, or other misconduct.”
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