As we’ve found out this year, short squeezes in no-name, no-business riskier companies are like car wrecks in-the-making that collectively, we’re guilty of wanting to watch. To buy though? No thanks. But that’s not to say select most-shorted stocks can’t be purchased with a greater chance of lasting success.
To be sure and if Reddit’s meme-trading ape population has taught us anything in 2021, we are them to a larger degree than most of us would like to admit.
For one, as a community Redditors buy and sell like ordinary investors. Similarly, bullish apes have their trading plans to rigorously follow. And just like more hallowed investment strategies on Wall Street, even the most well-executed decisions are capable of producing both windfalls and losses.
But the buck largely stops there when it comes to us versus them. Support.com (NASDAQ:SPRT). SCWorx (NASDAQ:WORX). Origin Agritech (NASDAQ:SEED). Those are some of today’s more coveted most-shorted stocks which many Redditors are happy to call home, briefly at least. They’re also all wildly speculative investments given their business prospects and equally suspect stock pricing to match.
Today, let’s look at a couple most-shorted stocks where investors other than apes can wager on the proverbial house rather than a shaky house of cards. Here are three well-shorted, large-cap industry leaders whose price charts and options markets offer a solid advantage to buyers.
Heavyweight, Most-Shorted Stocks to Buy: Tesla (TSLA)
The first of our heavyweight, most-shorted stocks to buy is a little-known EV company by the name of Tesla. Okay, so Tesla isn’t exactly a secret. You own one or your neighbor has one parked in their driveway, right?
Despite all of its success TSLA stock remains a heavily-shorted company. On a dollar basis Tesla’s non-assuming 4% short-interest is still the equivalent of more than $21 billion bet against the company.
That angle on short-interest makes Tesla the largest, most-shorted stocks by a huge margin. What’s more and today, those bearish holdouts are in jeopardy of getting run over on the TSLA price chart.
Technically, a review of this most-shorted stock’s monthly chart shows a confirmed double-bottom pattern is in play.
Today and parked roughly 1% beneath May’s $706 signal price and an oversold stochastics turning the corner, TSLA is offering a terrific spot to pick up shares at the intersection of where growth meets value on the price chart.
To prepare for a safer, but hopefully electrifying breakout later this year, a December $750/$900 bull call spread remains a favored strategy to go long this most-shorted stock.
Square is the next of our heavyweight, most-shorted stocks to buy. As with TSLA stock, I’m going to guess you’re familiar with the fintech giant. If for no other reason you’ve undoubtedly swiped a credit card purchase or two using the outfit’s mobile payments hardware.
Unlike Tesla, SQ stock’s short-interest statistic of about 8% is only a couple percentage points from a cattle bell of sorts attracting a few apes to begin feeding on this most-shorted stock’s bears. But it gets better!
At roughly $7.5 billion in stock shorted, Square is already one of the market’s largest dollar-weighted vehicles harboring bears. As well and technically, it also appears those naysayers have it all wrong on the price chart.
This week SQ stock has staged a breakout to fresh all-time-highs out of a slightly awkward-looking, corrective double-bottom base. Aesthetically, I’d prefer to have had this most-shorted stock trade out of the base in July. Still, I’m giving the benefit of the doubt to SQ stock.
I’m upbeat on the pattern’s burly six months of construction and on-the-cusp bullish stochastics crossover inside neutral territory. Net, net there’s plenty of technical evidence to drive shares markedly higher in the months to come.
To take advantage of our bullish outlook while minimizing downside exposure, consider the October $290/$330 collar combination in SQ as a good starting point to buy more smartly into this most-shorted stock.
Heavyweight, Most-Shorted Stocks to Buy: Advanced Micro Devices (AMD)
The last of our heavyweight, most-shorted stocks is Advanced Micro Devices. The semiconductor outfit is another industry leader whose shares maintain a legion of bears. As with TSLA and SQ, it’s proven costly.
At the moment AMD stock also appears to be still unfinished bullish business following top-notch earnings results in late July. That’s a pending problem for this most-shorted stock’s 7% and hefty $7.5 billion in short interest. More importantly, a profitable opportunity for bulls is setting up.
Technically, this most-shorted stock has broken out to new highs after making mincemeat of a bearish head-and-shoulders topping pattern.
Given the size of AMD’s post-earnings stock reaction, some investors might see a bit more price consolidation as necessary before buying shares. But that could be costly.
As an obvious growth story and one which the momentum trade is in command of the action, it’s more important this most-shorted stock is able to hold above key Fibonacci and pattern support from roughly $97.50 – $103.25. And momentum traders should want that kind of testing to remain at arm’s length.
Any additional profit-taking opens the door to potential failure of support and an undesirable change in character. In turn, that could lead to a more significant and undesirable correction in this most-shorted stock over the near-term.
Given the stakes in AMD stock, a hedged September $120/$135 collar allows for successful momentum profits to unfold in the days and weeks ahead.
As smartly and in the event of a larger bearish cycle, this strategy’s very modest downside exposure puts investors in position to bet more heavily on the house when others are folding after a singular bad beat.
On the date of publication, Chris Tyler holds (either directly or indirectly) positions in Advanced Micro Devices (AMD and its derivatives. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.