Arrival (NASDAQ:ARVL) stock, a failing British electric vehicle maker, is undergoing a short squeeze.
The shares doubled in price on Jan. 12 and rose by another 16% overnight.
But this is still a penny stock, opening on Jan. 13 at about 62 cents/share, a market capitalization of under $400 million.
Arrival is a British company that faces delisting and possible bankruptcy, as our Samuel O’Brient detailed in November. The company finally delivered its first electric van in late September but lacks the capital to put its plan for “microfactories” into action. Reporters in the United Kingdom say the dream of a new British electric car industry is over.
When Arrival first came public in March 2021, through a Special Purpose Acquisition Company (SPAC), it was valued at $13 billion and sold for $22 per share. This brought founder Denis Sverdlov a paper fortune of $10.6 billion. He’s not a billionaire anymore.
But when failure is obvious, shorts flock in like vultures over a rabbit carcass. Fintel has estimated 21% of the stock was recently being held short. The number of shares being held short rose 12.5% in December.
This has attracted small traders anxious to control the stock’s float and squeeze the shorts, who are only borrowing stock in hopes its price will decline.
Over on Stocktwits, traders seem more skeptical about the Arrival squeeze than about other targets like Blue Apron (NASDAQ:APRN). Most of the short contracts expire in January, one trader noted, meaning the game will be over in February.
As I have written, the entire electric vehicle stock market has broken down, even as sales continue to rise. Arrival is far from the only such stock selling for under $1 per share.
ARVL Stock: So What Happens Now?
The green shoots of a market rally have many small traders partying like it’s 2021.
Hopefully, they have learned that what goes up on a short squeeze can quickly fall. It would be a shame if more small investors’ fortunes were hurt by the latest craze, but that’s just what is going to happen.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.