Wheeler REIT (NASDAQ: WHLR) stock is up 200% and change postmarket last night and premarket today. This is also on heavy volumes, several times normal daily turnover. There’s no specific news from or about the company. But there is a massive short position - which we think has just been squeezed. This is not on hte basis of any specific information, this is just from observation.
As to what happens at Wheeler: “Headquartered in Virginia Beach, Virginia, Wheeler Real Estate Investment Trust, Inc. is a fully integrated, self-managed commercial real estate investment trust (REIT) focused on owning and operating income-producing retail properties with a primary focus on grocery-anchored centers.” That not been a great business to be in lately. Which is one reason the stock’s down 94% over the past year. The market capitalisation is - or was, before this most recent move - down to $800k. Truly a tiny company.
But the most salient point is that the short position was over 40%.
Wheeler REIT stock price from Google Finance
One read on the company just recently: “the transformative Cedar acquisition, initial D share tender, and subsequent revised tender. With both tenders failing, Wheeler is careening towards a death spiral of share issuance that should make the common un-investable.” OK, if people feel like that about the stock then we can see why the short position is so large.
But such a large short position is terribly vulnerable. Because it wouldn’t take much buying - in the range of tens of thousands of dollars perhaps - to start that stock price rising.Once it does some with short positions will be forced to buy to close out their position. This then raises the stock price again, causing more positions to close and off goes the cascade we cal a short squeeze.
There is no theoretical limit as to when this ends. It ends simply when either all short positions are closed or when people get bored of the trade. What price is that going to be at?
This trading these events is difficult. Yes, we’d like to be long for as long as it goes up. But it’s clearly going to crater again as soon as the squeeze is over, which is when we’d like to go short ourselves. But diving that perfect moment to shift stance is difficult. Simply because a short squeeze doesn’t have to have any definable end. It’s just over when it’s over.
Wheeler REIT is therefore very risky at present despite the obvious temptations.
