27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Experienced traders know a rise in short interest can potentially be a red flag for a company. At the same time, a wave of short covering can be a sign a troubled company has turned the corner or that short sellers are abandoning their bearish outlook.
Earlier this month, S3 Partners analyst Ihor Dusaniwsky compiled a list of companies that have experienced the most short covering over the previous month. Dusaniswky said long buying volume in these stocks coupled with short covering can be a major catalyst for near-term upside.
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“Short selling when other shorts are actively shorting and buying when shorts are covering may add to the amount and velocity of Alpha generation,” he said.
Stocks with bullish price momentum experiencing short covering may suggest shorts are throwing in the towel on their bet against the company. Stocks with bearish price momentum experiencing short covering may suggest shorts lack conviction in their thesis or believe the stock will soon turn the corner.
Top Short Covering Stocks
Here are the 10 stocks that have experienced the largest downward change in the dollar value of shares shorted in the month prior to the S3 report:
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- Apple Inc. (NASDAQ:AAPL), $2.09 billion covered.
- Restaurant Brands International Inc (NYSE:QSR), $1.3 billion covered.
- Alibaba Group Holding Ltd - ADR (NYSE:BABA), $1.21 billion covered.
- Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), $926.2 million covered.
- Microsoft Corporation (NASDAQ:MSFT), $902.6 million covered.
- Amazon.com, Inc. (NASDAQ:AMZN), $737 million covered.
- Occidental Petroleum Corporation (NYSE:OXY), $645.5 million covered.
- Target Corporation (NYSE:TGT), $556.7 million covered.
- Estee Lauder Companies Inc (NYSE:EL), $519.2 million covered.
- Dominion Energy Inc (NYSE:D), $455.2 million covered.
Benzinga’s Take
Many of the top stocks on the S3 list that have experienced short covering in the past month are mega-cap tech stocks. Tech traders should pay particular attention to short interest numbers in coming weeks to see if recent market rotation out of tech growth stocks and into value stocks is the beginning of a longer-term trend.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
Related Links:
13 Stocks With Short Squeeze Potential
11 Most Aggressively Shorted Stocks
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.