What Is A 'Short Squeeze' And Can Investors Profit From The Strategy?

• (0:45) - Short Squeeze Approach
• (2:05) - Finding Stocks That Could Be Ripe for a Squeeze
• (4:30) - Brad Lamensdorf's Shorting Experience
• (6:25) - SQZZ: Short Squeeze ETF
• (12:25) - How Long Does a Short Squeeze Last?
• (14:20) - SQZZ's Expense Structure
• (16:00) - How Does SQZZ Fit Into a Portfolio?
• (17:30) - Episode Roundup: email us at Podcast@Zacks.com !

A favorite approach of many traders is finding investment candidates ripe for a so-called ‘short squeeze’. This technique tries to buy stocks where there is sizable—but unjustified-- short interest, which is shortly followed by a rush among short sellers for the exits.

This rush may take place because of a positive news event or even just an uptick in the market, but the result is the same; short sellers racing to cover their positions. Since short sellers must buy back stock to cover positions, this can have a dramatic and positive impact on the price—in some cases— and especially if it is a thinly traded stock or if other owners do not want to sell at a given price.

Many like this strategy because not only do you get to punish those who bet against your investment, but you get to reap a nice profit too.

But how do you find these securities and when do you get out?

To understand more about this approach, I spoke with Brad Lamensdorf of Active Alts. Brad is quite knowledgeable about what shorts are looking for—thanks in part to his work as a portfolio manager for the short-focused HDGE—and has a good handle on when the shorts may be incorrect in their assumptions as well.

That is probably part of the reason that Brad launched the Active Alts Contrarian ETF SQZZ on the market. This fund looks to find candidates that are ripe for a potential short squeeze, and it is something that I personally have been very excited to learn more about too, so it was great to have Brad on to discuss the strategy and SQZZ’s process for this week’s Dutram Report.

SQZZ in Focus

In addition to discussing short selling basics, Brad also clues us in on how SQZZ goes about finding short squeeze candidates. We also go over the expenses for this approach, and the impact of buying stocks that are hard to borrow too.

Brad and I also go over the current portfolio components, and how long it usually takes for a short squeeze to play out. A few examples are also discussed, including Weight Watchers (NYSE:WTW) which was a great squeeze for investors, current holding Sirius XM (NASDAQ:SIRI) , and others too. It is also worth noting that the portfolio stretches across industries, including everything from Iridium Communications (NASDAQ:IRDM) to Chegg (NYSE:CHGG) so there are plenty of securities out there that could be potential candidates, but learn more about the process and the portfolio in the podcast.

Bottom Line

But what do you think about the short squeeze strategy? Is this something you’ve considered for your portfolio? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.

But for more news and discussion regarding the world of investing, make sure to be on the lookout for the next edition of the Dutram Report (each and every Thursday!) and check out the many other great Zacks podcasts as well!

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