I had been working on some DD prior to the initialization of the squeeze, but didn’t finish it in time, and there’s a lot of good DD out there already. I’m going to focus on what’s happening right now (8/9, BBBY down \~20% and what it means).
TL:DR; $BBBY has a lot of underwater short interest that is actively working against a squeeze. Today was a do-or-die moment.
Positions: 11K shares at about $7. Took profits along the way, but I’m holding what I have left to see what happens.
Shares, Ownership & Short Interest
BBBY has been buying back shares for the last few years (terrible capital allocation imo, but that’s water under the bridge) and is now down to 79M shares outstanding from 186M in 2015:
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https://preview.redd.it/olsk42b65qg91.png?width=864&format=png&auto=webp&s=ae9337fa823a6d3a0c2661bda05316a4a6f238b5
Currently, institutions and strategic entities are long 84M shares out of 79M outstanding \- yes, they are long more than 100% of issued shares. We’re not even talking about float here.
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https://preview.redd.it/9shqtnw75qg91.png?width=807&format=png&auto=webp&s=363edeb45e8cfcf1e6cff1ba8ba166e0749ce708
As you can see from the blue line in the first chart above, there was one large short cover during the squeeze in Jan 2021, but since then, the short interest has been mostly flat up until July of this year at about 20M shares - despite the buybacks.
That’s from quarterly short interest reporting. Now, S3 reports that 10M shares were shorted below $7
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https://preview.redd.it/fo7mhoad5qg91.png?width=835&format=png&auto=webp&s=66cc9dacca854c0a0f7e6fd13f121329d3d5e490
The short thesis here, again, is bankruptcy. Admittedly, this is not an impossibility, though the higher the share price goes the less likely (given the potential to do share offerings to raise capital).
So, nutso summary here:
- 80M shares issued
- 85M shares owned by institutions and funds
- 30M+ shares short, with 10M shorted below $7
Price action on 8/8 after hours on 8/9
I was pretty attuned to the GME squeeze in 2021 having written a lot of posts as part of my EndGame series. I’m seeing many similarities in behaviors. Here are some notes:
- Shorts tended to defend the price level of 2x their entry. For GME, this was $15.8, which was defended hard a few times, and when that level was lost it was squeezetown. $15.8 represented 2x the entry price of a large quantity of shorts. Why is this significant? At 2x the price, your short is now at -100% and it’s very likely your risk mgmt group is going to shut you down.
- BBBY started going on 8/8 and in particular after hours. Why did we have a 16% spike after hours? That started at $12. My hypothesis is that there were a group of shorts that entered at $6 and began to get force closed at -100%.
- Premarket at 8/9 was sitting at $13+. If the market opened bbby at $13+, there would have been a slew of force closures from smaller and potentially larger short entities as that would represent -100% for larger and larger portions of the 10M short shares added under $7. It was critical for shorts to move the price down. Do or die at $13.
So it's do-or-die, what do shorts do?
- Selling during low volume premarket to establish downward trend
- Shorting via synthetic shorts (short calls / long puts)
- Analyst downgrades
https://preview.redd.it/snvpahsh5qg91.png?width=560&format=png&auto=webp&s=7ba2111b9a9b32a6f2d5ee0cd540325aedc2a148
- Potential astroturfing in WSB (low karma, low post history accounts sharing negative sentiment in daily thread)
- A decent amount of algos follow sentiment in retail, and in addition to shorting you can astroturf social media investing sites to change sentiment
- Once BBBY hits -10%, they can’t short on the bid, so they establish sell walls to keep the price below ask (examples):
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https://preview.re