Retail investing subreddit r/WallStreetBets has spun the short-squeeze-stock wheel this morning. And it appears the arrow is landing on Root Inc. (NASDAQ:ROOT). The company is exploding on the subreddit in terms of comments, and the stock is moving in massive quantities. Some are making their exit as ROOT stock sees a boom and bust this morning, whereas others are buying in and predicting a squeeze that will boost their long positions.
Root is a car insurance company with an innovative model: It insures only good drivers. Users must download a location-tracking app to leave on when they drive during a test period. Users deemed by the app to be a good driver are offered a competitive insurance premium through the company. The result is that the company only insures drivers who are typically much safer. This allows Root to offer lower premiums than other insurers who must account for more dangerous clients.
ROOT stock is one of the more heavily shorted by Wall Street institutions; about 19.5% of ROOT’s float is being sold short. The r/WallStreetBets crowd has been recently pouring into the stock as a result.
ROOT Stock Sees Whiplash-Inducing Price Momentum in Early Moments of Trading
The company is seeing some of the most volatile price movement across the market this morning. After closing Friday at $6.40, the price of ROOT stock quickly pumped to a high of $7.53 in the first minutes of Monday morning. Of course, not wanting to be left holding the bag, many investors sold off shares and sent the price plummeting, although it is still higher than Friday’s close.
As prices sank back down to about $6.80, chatter began picking up about the stock on r/WallStreetBets. Mentions of ROOT on the board are growing nearly 700% over a 24-hour period. The sudden growth in conversation around the stock is interestingly spurring debate among users over whether or not ROOT is a short squeeze play or a pump and dump.
While that battle wages on in the comments, ROOT is already rebounding from its price plummet after the selloff. Shares are still up over 9% on today’s trading session. Additionally, trading volume continues to surge. Over 30 million shares are exchanging hands against a daily average volume of 5 million. So, these users will have to work out among themselves who was left holding the bag, or who prematurely dumped the bag.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
