Are These 2 Companies Next for Short Squeezes?
Smile Direct Club (NASDAQ: SDC) has a very high short interest -- 37% of its public float is sold short. And a lot of bears are shorting Accelerate Diagnostics (NASDAQ: AXDX) as well -- 21% of its float is being shorted. Shorting stocks is a dangerous game to play. Normally when you purchase stock, the money you invest grows as that stock price increases and as the price decreases you start to lose money. If the business fails completely, you can only lose your initial investment.
Shorting means betting on the company's downfall to win big. But since the market counts on stocks to improve overall, the math is against you. While shorting a stock, you are going into debt via the shares you are borrowing from the brokerage. You're going to have to pay them back. And that brokerage can (and will) seize your shares if the stock starts going in the wrong direction. You either have to add more money or exit the position. That's called a short squeeze.
The higher the short interest, the more likely a squeeze will happen. Will a short squeeze happen with SmileDirectClub or Accelerate Diagnostics? No one can be sure, but shorting these companies is a bad idea. Here's why.
Source Fool.com
