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Short Interest Opportunities in Coronavirus Bulls

As a short term, directional options trader I definitely have a list of favorite names to trade.

These include:

  • Beyond Meat (BYND)
  • Zoom (ZM)
  • Chewy (CHWY)
  • Wingstop (WING)

They get a bad rap with long term investors because they’ve rallied so hard and are so hyped up. However for me, they’re my bread and butter when it comes to trading short term options. I love these tickers because they regularly experience greater than expected moves due to their hype, and the majority of them have high short interest.

Trading the short squeeze is one of my favorite setups. Basically, I look for a spot where short sellers will feel pain (typically on earnings or right near a previous or all-time high), then I buy options to trade the long move as the short sellers cover.

Here’s how I break down my setups for each ticker:

BYND — This high short interest ticker has broken through key resistance between 100-130, and now that it’s up 6% short sellers are in the perfect position to get squeezed — making a great long entry for me. Tickers like this that’re breaking overhead resistance, have high short interest, and are up substantially on the day are the perfect spot to look for a short squeeze. To trade this, I get long before the close, looking for an overnight short covering gap. I usually either sell put credit spreads or buy delta .70 calls. And let’s be real, who really wants to buy real meat right now with meatpacking plants being COVID-19 hot spots?

ZM — This ticker is primed for a short-dated run into earnings. A hot name like this typically sees a rally going directly into the earnings report. I trade this by buying delta .50 and delta .70 calls in the earnings series for a rise in IV and rise in price going into the report. Then I sell the options before the report because I don’t want to get hit with the IV crush. So, no, it’s not too high to buy. I think it looks great actually. All of the hype around tickers like this is the primary reason why they trade higher into an earnings report. And I mean obviously… everyone and their brother is using Zoom so there’s that!

CHWY — Chewy looks fantastic. I like the cup and handle and consolidation on the daily chart with the impending earnings report. Chewy is also a recent IPO with 14% high short interest right near all-time highs, with an upcoming earnings report. This is one of my favorite setups. It’s also in the online pet retail space and they’re hot right now. Plus, people have been adopting pets at a high rate due to COVID-19 loneliness. I would love to buy it right here. Plus, if it breaks $47.55 (the all-time high), it’d look even better because the 14% short sellers would have to cover, making it blast even higher. Right here it looks good for a 2-3 week trade prior to the report and on the break it’d look even better.

WING — Wingstop is a short squeeze. This ticker has been squeezing shorts for a long time, and now they’re down to about 10% of the float. So, there aren’t as many short sellers to squeeze at this point, but as WING hovers at the all-time high, the 10% remaining will continue covering each time this thing breaks to another new high. I like the consolidation on the 195 min chart and that could give us the next break higher. I like this one for a short term pop, but I do think most of the run has been made.

To see the full segment or read Trading Nation’s article, click here.

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