Over the weekend, Keith Gill — who goes by the online moniker Roaring Kitty — shared a screenshot of a major speculative position. As detailed by InvestorPlace contributor Dana Blankenhorn, Gill’s action sparked a rally in traditional meme stocks. Subsequently, embattled electric vehicle manufacturer Faraday Future (NASDAQ:FFIE) shot higher on speculation that FFIE stock could enjoy downwind benefits.
Gill is known for spearheading the concept of meme stocks, which involves organically coordinated trading on social media on typically beleaguered enterprises. Utilizing calls to action such as YOLO (you only live once), HODL (hold on for dear life) and “apes together strong,” the collective buying frenzy can lead to incredible gains.
FFIE stock represents a clear example of this dynamic. As recently as May 9, shares closed at only 4 cents a pop. A week later, on May 16, Faraday commanded a per-share price of $1.65. On May 20, FFIE closed at a near-term peak of $1.80 before subsequently collapsing.
Still, speculators aren’t giving up, with FFIE stock gaining around 10% during the afternoon hours.
Short Squeeze Helped the Case for FFIE Stock
As a MarketWatch post mentioned hours ago, FFIE stock can be considered as a classic meme play. Social platform Stocktwits remarked that a meme-based security’s “main mechanism for rising is market mechanics, not business fundamentals.”
Regarding Faraday specifically, Stocktwits added that “there are a core group of investors who believe in the company’s long-term vision and potential. However, the vast majority of the discussion and following is related to its price momentum, short-squeeze potential, and other market-related factors.”
At one point, FFIE stock carried an extremely high short interest. Per MarketWatch, this metric stood at 28.3% of the public float. However, the latest data from Fintel (as of May 31) shows that short interest sits at only 2.75%. What’s more, at a leading brokerage, there were 7.5 million shares available for shorting activities.
To be clear, the last point is not an all-inclusive figure. However, it aligns with reality as FFIE’s short interest ratio was recently sitting at 0.05 days to cover. That means it would take little time for short traders to unwind their positions based on average trading volume.
With a now less compelling short-squeeze picture, Blankenhorn’s final note of caution likely applies to FFIE stock.
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.
