Medicare insurer Clover Health (NASDAQ: CLOV) has soared about 86% in Tuesday trading after it became a newly appointed short-squeeze target for retail investors.
The company, which went public through a $3.7 billion reverse merger with Chamath Palihapitiya’s SPAC in October 2020, has been one of the most shorted U.S. equities with short seller Hindenburg Research targeting Clover in one of their reports.
According to Ihor Dusaniwsky, managing director of predictive analytics at S3, short interest in Clover was around 49.10 million shares representing 43.5% of the float. This made it an appealing target for retail investors affiliated with the WallStreetBets forum, having previously targeted stocks with a short float or 30% or higher.
The sharp rise in share prices was thereby further enhanced by what has been described as ‘gamma call ladder’ by Jay Wolberg, founder of Trading Volatility, a situation where market makers have sold a large number of call options on a string of adjacent strike prices, requiring them to cover their exposure by buying stock as share prices move closer to sold calls.
On Monday, the SEC confirmed a close observation of the recent trading frenzie in certain stocks to deduce possible “disruptions of the market, manipulative trading, or other misconduct.”