Ride the Gamma Wave: 3 Stocks on the Verge of a Short Squeeze


  • While never guaranteed and inherently risky, these three companies could become short squeeze stocks.
  • Biomea Fusion (BMEA): With several clinical trials underway, any positive news could start a rally.
  • Phathom Pharmaceuticals (PHAT): Squeeze potential is high for PHAT thanks to its new GERD drug.
  • Vital Energy (VTLE): Lower risk and lower reward, VTLE could be a distance long-term play regardless of shorting.
Short Squeeze Stocks - Ride the Gamma Wave: 3 Stocks on the Verge of a Short Squeeze

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One of the fastest ways to make money on the stock market is to gamble on short-term contrarian positions against the shorting interest of a stock. Since every company’s proportion of shorted stock is publicly available, it’s pretty easy to see which companies are expected to lose value. However, short positions on stocks are speculative, like any other investment, and can become short-squeeze stocks in the blink of an eye.

So, how does a shorted stock become a short squeeze stock? It all depends on an unexpected event causing the stock’s value to increase, which forces the investors who shorted the stock to buy themselves out of their short positions to mitigate losses. Because these investors exit the position through a buy signal, it causes even more value creation for the stock, creating a short squeeze and spiking the stock. This sharp spike resembles the wavelength of a gamma ray, hence why it is often referred to as a gamma wave.

For investors looking for potential short squeezes, it’s important to focus on imbalances of public perception of a company with its intrinsic value. As such, here are three potential short squeeze stocks to consider.

Biomea Fusion (BMEA)

wringing short squeeze, bills falling
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For biotechnology companies like Biomea Fusion (NASDAQ:BMEA), short squeeze plays are possible due to the fervor that can occur following a successful regulatory trial or approval. Regarding BMEA stock, 47.23% of its shares remain shorted, making it susceptible to a short squeeze if any particularly promising data from its clinical trials occurs.

BMEA’s primary delivery platform, the BMF-219 covalent drug, is in several early-phase clinical trials before cancer growth treatment and diabetes. With this many irons in the fire, it could take just one big breakthrough to send the stock up and force shorting investors to buy out of their positions.

However, as a reminder, there’s no guarantee this will happen. After all, short squeeze plays usually occur due to investor fervor and interest in a stock. It could be brushed aside even if BMEA’s clinical trials demonstrate greatness.

Phathom Pharmaceuticals (PHAT)

medicine research, pharmaceutical background, LJPC stock
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Another case of potentially good news overcoming short interest, Phathom Pharmaceuticals (NASDAQ:PHAT), is on the cusp of achieving regulatory approval for a new drug this year. So far, the company’s Voquenza drug for gastroesophageal reflux disease (GERD) has performed well since its FDA approval, but an even better formulation is pending approval.

PHAT’s newer drug, Vonoprazan, has completed its regulatory trials and is awaiting a decision from the Food and Drug Administration to launch it in the United States. Considering the prevalence of GERD in the U.S., this drug could become a lucrative revenue driver for PHAT.

It could also create an interest spike that turns PHAT into a short squeeze stock, as 43.57% of its outstanding shares are shorted. Ultimately, it’s another guessing game for investors trying to time their buy price at the lowest possible point before a spike. Moreover, FDA approval is not always guaranteed, which could cause significant losses for PHAT holders if rejected.

Vital Energy (VTLE)

Man squeezing water out of a rag representing FNGR stock. Short Squeeze Stocks
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With only 34.60% of its shares shorted, Vital Energy (NYSE:VTLE) likely has less short squeeze potential than the other two stocks mentioned above. This represents a double-edged sword for investors, as it represents lower risk and lower reward in the event of a squeeze. However, playing it safe is never a bad idea when speculating to such a contrarian extent.

Furthermore, Vital Energy trades at an 88% discount from its initial public offering price and has practically extinguished all of its gains for the last 12 months. Most brokerages currently give it a consensus rating of hold, which will likely keep the short squeeze at bay unless the stock consistently keeps up record production numbers as it did in its Q1 report.

For contrarian investors, VTLE’s short squeeze potential might be low, but buying it in preparation for a squeeze enables a safer long-term position.

On the date of publication, Viktor Zarev 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.

Viktor Zarev is a scientist, researcher, and writer specializing in explaining the complex world of technology stocks through dedication to accuracy and understanding.

Article printed from InvestorPlace Media, https://investorplace.com/2024/06/ride-the-gamma-wave-3-stocks-on-the-verge-of-a-short-squeeze/.

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