Clover Health Short Sellers Lost $502M On Tuesday

Love it or hate it, Medicare insurance technology company Clover Health Investments Corp (NASDAQ: CLOV) is the latest Reddit short squeeze stock ripping higher this week.

The stock gained 86% on heavy volume Tuesday as a massive short squeeze continued, and S3 Partners analyst Ihor Dusaniwsky said Clover short sellers are racking up major losses.

What Happened? Since completing its highly anticipated SPAC merger back in January, Clover was a major disappointment for investors from day one.

In fact, the stock spent much of the last three months trading below $10 per share. In May, Clover reported just 18% revenue growth in the first quarter and a net loss of $48.4 million.

Despite these underwhelming numbers, Clover shares have skyrocketed more than 127% in the last month, driven in large part by a spectacular short squeeze.

Related Link: Why Naked Short Selling Is Not As Prevalent As You Think

On Tuesday, Dusaniwsky said Clover still has $585 million in short interest. Dusaniwsky estimates Clover’s short percent of float at 43.5%, making it one of the most heavily shorted stocks in the market. Year-to-date in 2021, Dusaniwsky said Clover short sellers have already endured a 210% loss on their positions.

In addition to daily hammering in the open market, Dusaniwsky said Clover short sellers are paying a 2% stock borrow fee.

What’s Next? Dusaniwsky said Clover short sellers have been willing to weather the storm so far this week. Despite a $502-million loss on Tuesday alone, Clover’s short interest has increased by 4.5 million shares in the last week.

“Short sellers look to be shorting into a rising market and an overheated stock, looking for a pullback off of these elevated levels. But shorting into a rising market produces mark-to-market losses, and today’s price spike has resulted in big red numbers for short sellers,” Dusaniwsky said.

Benzinga’s Take: Traders should be extremely careful trying to time the squeeze and any potential pullback. Short squeezes are notoriously volatile and unpredictable, even to some of the most experienced stock traders.