Traders had traded more than $ 14 billion in Clover Health shares of the Medicare-backed insurance seller at the close, eclipsing the overall market value of the company by around $ 9 billion.
Shares of Clover Health, which closed 85.8% higher at $ 22.15 after hitting a record high of $ 24.93 previously, recorded the highest trading volume on U.S. exchanges on Tuesday. Over 700 million shares changed hands compared to an average of around 30 million in the past 10 days.
Its shares, which have risen slowly since late May, were among the shortest on U.S. stock exchanges, after being the target of a report by short seller Hindenburg in February, which took a position in the company.
The “meme stock” phenomenon, which began with video game retailer GameStop Corp in January and spread to movie theater operator AMC Entertainment Holdings Inc in May, has prompted the United States Securities and Exchange Commission to state that she was investigating signs of market manipulation.
Stocks have been the focus of buying for retail investors who have promoted the stocks in forums such as Reddit’s WallStreetBets.
“Shorts strengthened their position in (Clover Health) as its stock price rallied,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
Short shares of Clover Health rose 4.5 million shares, worth $ 54 million, over the past week, according to research from S3 Partners. By comparison, short Clover Health shares have risen by 9.7 million shares, worth $ 115 million, in the past 30 days.
Short interest in Clover Health stands at $ 585 million, with 49.10 million shares short, or 43.5% of Clover’s free float, he said.
Clover’s backer, venture capitalist Chamath Palihapitiya, took the company public through a $ 3.7 billion reverse merger with its blank check company in October 2020.
Clover options have sparked a wave of bullish actions in recent days with trade volume reaching 587,000 contracts on Monday, compared to an average daily volume of less than 50,000 contracts for the month of May, according to Trade Alert data.
Call options speculating on the stock climbing to $ 30 were among the most traded contracts in recent days.
“GAMMA APPEAL SCALE”
Clover’s 30-day implied volatility, an options-based measure of how well traders expect the stock to turn in the short term, was 176%, up from 93% at the end of May, the data showed. by Trade Alert.
The massive jump in Clover shares on Monday was aided by a “gamma call scale” of options – a situation in which market makers sold a large number of call options on a strike price chain adjacent, said Jay Wolberg, founder of Trading Volatility, a data and analytics provider focused on financial derivatives.
With the stock price moving closer and closer to these sold contracts, market makers have little choice but to buy the stock to offset their options exposure, thus pushing the stock to the limit. rise, in what is called a “gamma squeeze”.
“Clover was in a gamma call scale yesterday with a peak gamma of $ 12. Today’s peak gamma is $ 16 and there isn’t much gamma between $ 16 and $ 20 for the make it climb, ”Wolberg said.
With Clover options trading in high volume, the gamma image can quickly change as investors take new positions.
Among Tuesday’s other big players, Wendy’s shares climbed 26%, with Wallstreetbets commentators praising the burger seller’s often sassy Twitter profile.
“Their Twitter has a reputation for remembering themselves. And so are we,” read an article on the equity trading forum. “It’s a match made in heaven.”
The shorts recently hedged their short exposure in Wendy’s, with 1.4 million shares hedged, valued at $ 32 million, in the past month, Dusaniwsky wrote in a report on Tuesday.
GameStop, which holds its annual meeting of shareholders and releases its quarterly results on Wednesday, rose 7.1%. AMC only rose 0.1%.