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Clover Health shares double on session at one point as Reddit retail trading mania spreads

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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.

Insurance start-up Medicare, which went public on Chamath Palihapitiya’s SPAC, rose more than 100% on Tuesday after rising 32% in the previous session. The stock closed the day’s high but was still up 86%.

By afternoon trading, Clover had already traded over 650 million shares, according to FactSet, 30 times its 30-day average volume of 22 million shares. By the closing bell on Wall Street, more than 720 million shares had changed hands.

On Reddit’s WallStreetBets forum, which now has more than 10 million subscribers, the chatter about Clover grew. According to QuiverQuant, Clover became the most mentioned name in the infamous chat room on Tuesday. Reddit traders have been all over AMC Entertainment for the past week as traders piled into cinema chain stocks and call options and the stock rose more than 110% this month.

A short squeeze could be at play for Clover Health, which sells 43.5% of its float stocks short according to data from S3 Partners. This contrasts with about 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.

Short sellers added to their bearish positions as the stock rebounded from its initial pullback, according to SEC investigative news. Over the past 30 days, short selling of stocks has increased about 25%, according to S3.

“Short sellers appear to be shorting a rising market and an overheated stock and are looking to retreat from these elevated levels,” said Ihor Dusaniwsky of S3 Partners. “But selling short in a rising market results in mark-to-market losses, and today’s price hike has been big red for short sellers.”

S3 said short positions were down $ 502 million in mark-to-market losses after Tuesday’s rally.

Meanwhile, Wendy’s is also loved by Reddit traders as its stocks rose more than 25% 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 7% on Tuesday while AMC Entertainment closed unchanged.

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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Robert Dunfee