During a strong day for the broader market indices, shares of cosmetics giant Revlon (NYSE:REV) got Wall Street talking again. REV stock jumped 25% in the morning hours before tacking on additional gains in the afternoon session. At the time of writing, it is up 30%. Revlon enjoyed positive momentum against the backdrop of some of its creditors receiving an “unfavorable” assessment in a legal case. Still, social media chatter points to short-squeeze speculation as the cosmetic firm’s primary catalyst.
On Wednesday, Bloomberg reported that the 2nd U.S. Circuit Court of Appeals denied certain Revlon creditors a review of a case involving an accidental distribution of funds totaling more than $900 million. Citigroup (NYSE:C) erroneously sent the money to various lenders, including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management. Unless the affected parties file a petition to the U.S. Supreme Court, the institutions involved must return the funds.
“We believe the Second Circuit’s unanimous and highly detailed decision is supported by strong legal analysis and reaffirms our long-held belief that these mistakenly transferred funds should be returned as a matter of law, as well as ethics,” Citigroup spokeswoman Danielle Romero-Apsilos said in a statement.
Despite the connection to REV stock, many contrarian supporters of the underlying embattled organization believe short-squeeze speculation represents the main causal factor for Revlon’s bullish price action.
The Bulls of REV Stock Strike Again
Earlier this year, Reuters reported that Revlon filed for bankruptcy, “falling victim to global supply chain disruptions that pushed up raw material costs and prompted vendors to demand upfront payments.” Still, in the often bad-news-is-good-news mentality that undergirds the extreme speculation culture, many traders bid up REV stock.
At the time, bears understandably targeted Revlon for implosion, thereby saddling its shares with high short interest. However, the risk in all short trades is that the underlying security can swing higher. Since no theoretical price limit exists for any security, bearish traders face the possibility of unlimited liability. In order to spark this panic — which involves buying shares to cover “negative” positions — contrarians deliberately bid up troubled securities.
The intensity of the bull/bear battles helped buoy REV stock, which otherwise stands on precarious ground. However, shares started slipping in recent trades prior to the latest move up.
According to Fintel’s Short Squeeze Leaderboard, Revlon ranks no. 16 out of the 250 most-shorted U.S.-listed stocks. Presently, REV stock features a short float of 25.1% and a short interest ratio (or days to cover) of 6.2.
On the date of publication, Josh Enomoto 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.
