In 2021, a new presidential administration took shape while meme stocks and short squeezes sent markets into a frenzy. In 2025, another new presidential administration is taking shape, while meme stocks and short squeezes again send markets into a frenzy.
While history doesn’t always repeat, we might see it rhyme as obscure small-cap stocks produce parabolic gains on a wave of retail volume. The names are different (and it’s Superman leading the box office this time over Spider-Man), but it might be time to dust off the short squeeze trading playbook and consider a few lottery tickets.
Hunting short squeezes is risky since these stocks are often thinly traded and highly volatile. Before buying any of the three stocks discussed here today, make sure this strategy fits with your investment goals.
Anatomy of a Short Squeeze: Important Factors to Consider
Short squeeze candidates are often terrible-looking investments at face value—that’s why so many investors are shorting! You don’t short profitable winners like NVIDIA Corp. (NASDAQ: NVDA); instead, you short movie chains struggling to remain solvent, like AMC Entertainment Holdings Inc. (NYSE: AMC), or unprofitable tech firms, like Opendoor Technologies Inc. (NASDAQ: OPEN).
The idea behind a short squeeze isn’t a good long-term investment, but a quick parabolic gain as shorts race to cover. That’s why traders don’t look at fundamentals, but factors like these:
- Short Interest: The first and most obvious factor to look for is short interest, which tells you the percentage of available outstanding shares (called the float) that have been borrowed and sold short. High levels of short interest indicate a bearish tilt to the stock, but it can also lay the groundwork for a fierce reversal if the trend changes.
- Days to Cover: An often-overlooked yet crucial metric, days to cover refers to the time it would take short sellers to cover their positions (i.e., reacquire shares to return them to their broker) given the average daily trading volume. If this number is high, it indicates short sellers may have a difficult time locating shares and exiting their positions quickly.
- Volatility: Short squeezes aren’t for the faint of heart. These stocks can be extremely volatile, and even successful short squeezes don’t provide a hint when the party is about to end. Have a plan of attack and be prepared to weather a storm of volatility.
- Catalyst: The spark that lights the fire, a catalyst can be anything from a positive earnings report, regulatory relief, or a new product launch that creates demand for the stock. A short squeeze catalyst establishes a feedback loop where both bullish and bearish traders seek shares to buy to either hold or return them to their brokers.
3 Stocks With Short Squeeze Characteristics
Most heavily-shorted stocks don’t produce a squeeze, which is why finding a catalyst is a crucial part of due diligence. Nostalgia has drawn the AMC and GameStop crowds, but there needs to be a genuine reason for a reversal when hunting squeezes (as Gabriel highlights here for Opendoor). Here are three more candidates with high short interest and upcoming catalysts to keep on your radar.
Navitas Semiconductor: Earnings Expectations Are Low, Upside Could Be High
Shorting stocks in the semiconductor space is a bold decision considering the AI gold rush, but Navitas Semiconductor Corp. (NASDAQ: NVTS) currently sports 32% short interest on its 134 million share float.
Shorts control about $385 million of the stock’s $1.72 billion market cap, which makes sense considering the company only generated $83 million in sales over the last 12 months and continues to post negative EPS.
The company's Q1 revenue dropped nearly 40% year over year (YOY), but it did meet analyst expectations. The Q2 report is scheduled for August 4, and while expectations are low, an upside surprise could be the catalyst needed to trigger a squeeze.
Red Cat: Riding Regulatory Tailwinds
Red Cat Holdings Inc. (NASDAQ: RCAT) has seen short interest balloon lately, with 20% of the float now short, a 38% increase over the previous month. A poor Q1 earnings report is likely the culprit, as the company missed EPS expectations by a significant margin—a loss of 27 cents per share reported versus a 10-cent loss expected.
However, the company expects to achieve profitability by the end of the year, and its drone capabilities have already sparked interest from the U.S. government.
Regulatory tailwinds are at Red Cat’s back, and its next earnings report is scheduled for August 14.
QuantumScape: A Squeeze Already Underway?
QuantumScape Corp. (NYSE: QS) only has 14% short interest, but that hasn’t stopped it from pumping out a 123% gain over the last month as the short squeeze trend reignited. The EV battery maker’s stock jumped 30% on a single day in June after announcing its new Cobra Separator Process.
Since this development, regulatory headwinds for EVs have been introduced, but those were likely priced in as the stock soared again in July.
Shares are down 14% this week as the rally takes a breather, but they received a price target boost from Robert Baird, which increased from $6 to $11, now the highest figure on the Street.