A short squeeze takes place when an excessive amount of short sellers have shorted a stock, the stock comes out with good news, and the price of the stock spikes by an excessive amount, because all the short sellers have to scramble to cover their positions by buying in their shares, often due to the fact that they are getting margin calls.
Potential short squeeze plays have several metrics for comparison purposes. One of the most popular metrics is the Short Interest Ratio, also known as the Days to Cover. What this measures is the number of days it would take the short sellers to cover their positions based on the average daily trading volume. The longer it would take to cover, the higher the ratio. Another analysis is the number of shares short as a percentage of float. The higher the percentage, the greater the chance that an upside shock would drive up the price.
The retailer sector has many short squeeze plays to choose from, whether it's retailing technology or retailing food. Here are some examples. Shown is the name of the company and the short interest ratio, in other words the number of days it would take the short sellers to cover their positions based on recent volume.
Roundy's (NYSE:RNDY) 18.4
Safeway (NYSE:SWY) 16.1
Saks (NYSE:SKS) 12.8
RadioShack (NYSE:RSH) 11.6
GameStop (NYSE:GME) 7.6
Barnes & Noble (NYSE:BKS) 7.3
J.C. Penney (NYSE:JCP) 7.3
SUPERVALU INC. (NYSE:SVU) 5.5
Any positive news could cause these stocks to skyrocket.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.