Gamma Squeeze And COVID Variant Top Picks - GGPI, KRYS, ISPC, GOVX, AHPI

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This post is going to be about five stocks that I find to have strong squeeze potential. Gores Guggenheim, Inc. (GGPI), a recent favorite gamma squeeze candidate, Krystal Biotech, Inc. (KRYS), an excellent squeeze candidate based on news and movement today, and three COVID variant plays - iSpecimen Inc. (ISPC), GeoVax Labs, Inc. (GOVX) and Allied Healthcare Products, Inc. (AHPI).

First, GGPI. GGPI is slowly gaining momentum since I mentioned it on November 21. It closed at $14.11 today, its highest price since then. GGPI's exposure and meme stock status has increased as some in-depth DD on Wallstreetbets has gotten positive feedback. Refer to that post for additional information on the stock. A blog post on Seeking Alpha with a target of $35 put forth a straightforward fundamental argument for going long GGPI. I think the reasons for being long are quite apparent here. 

My focus has been on the gamma squeeze potential of GGPI through increased demand of call options, especially as the merger date nears. This is the latest screen shot of call options outstanding for December and January from Yahoo Finance. Below each month is the screen capture from initial blog for easy comparison. 

There are a combined 42,954 call option contracts open at the $10 and $12.50 strikes for December and 77,343 for January. December open interest on in-the-money has slightly decreased, but there was an increase in January. Adding in the small amount of open interest at $7.50 strikes and below, if the funds that are writing these contracts are trying to remain delta neutral, this is 12.2 million shares locked up in call option contracts that are reasonably expected to expire in the money over the next two months. That's a massive amount of the 80 million pre-merger shares outstanding on GGPI. 

The big jump has come from the $15 calls. There are 39,251 call options open between the December and January expiries, a 6,000 increase from 11/19. This makes sense as the stock gains in popularity and people understand the gamma squeeze potential and want the leverage. This represents 3.9 million in shares that are to be purchased and locked up in an attempt to be delta neutral should those calls go from being OTM to ITM as GGPI surpasses $15. My guess is that the open interest on the $15 calls is going to continue to increase, especially as we inch closer to the December expiry date. The December $15 calls had 12,505 in volume today. That's a record from what I've seen. Expect a jump in open interest on the calls tomorrow (net volume changes are reflected the next day on open interest).  (EDIT: open interest on December $15 calls increased to 27,313, a 4,000 jump from the previous day)

Having a look at the strikes at $17.50 and above, there are 56,213 open calls for December and 42,350

open calls for January. Both of these are substantial increases over the 11/19 numbers, particularly at the highest strikes. This makes sense as it's very cheap to buy up a lot of $30 December calls right now. That's an additional 9.9 million in shares that get locked up in delta neutral call option positions by the option writers should these go in the money. Though admittedly, GGPI hitting $30 in the next three weeks is a long shot. 

Keep in mind that this is a snapshot of the numbers TODAY. These numbers are only going to increase based on the high level of interest of call options already and increases in speculation and meme stock status. Below is a summary of a chart assessing the gamma squeeze potential, and we see the chances have improved as the open interest on the calls increases across the board over the past ten days. This is particularly impressive as the Thanksgiving holiday limited trading over the past several days. 

On 11/19, mid-month short interest for 11/15 hadn't been reported yet. Now we know it has increased in the first two weeks by 700,000. The open interest of call options has increased across the board and represents a potential of 31.7 million shares locked up in delta neutral hedging strategies, an increase from 29.3 million.  

Once the merger takes place, Polestar will have over 2 billion shares outstanding. This is a consideration for long term valuation (keeping in mind we already know it's way undervalued versus LCID and RIVN), but for near term squeeze potential, all we care about is the current number of GGPI shares outstanding. Out of 80 million shares, already 16.6 million of them are allocated for delta neutral in-the-money call option hedges for all expiries between December and 2024. 

GGPI is a benefactor of having a very big story packed into a relatively small float into the SPAC. Current GGPI holders will be diluted by 20 times, as they should. Polestar is bringing A LOT to the table. Eventually that float is going to grow to 2 billion post-merger. However, GGPI is receiving a disproportionate amount of interest in call options RIGHT NOW because of this story. 

What I'm trying to say is that in a normal IPO world, Polestar would have over 2 billion shares outstanding and the call option open interest that's generating 10's of millions of shares potentially locked in hedging strategies would not be a major factor to create a gamma squeeze. However, on a float of 80 million this IS a major factor. 

Next, KRYS. KRYS shot up 122% to $88.24 on positive Phase 3 results: "The primary endpoint of the trial evaluated complete wound healing of topical VYJUVEKTM compared to placebo at six-month timepoints and met statistical significance. VYJUVEKTM is the first non-invasive, topical and redosable gene therapy in development, and the only genetically corrective approach to treat dystrophic EB that has successfully completed a double blinded Phase 3 trial." 

The company filed a $200 million prospectus after hours but that might only provide temporary relief for shorts, or none at all. The stock closed at $92.41 after hours after the news of the offering had been released. 

This medical breakthrough sounds excellent, but I am not a doctor and my expertise isn't in the medical field. What I do see here is a strong squeeze potential, even more so than today. Excluding the coming raise, KRYS has 22.2 million shares outstanding and 15.3 million float. It had 2.1 million shares short as of 11/15. But the real kicker comes from analysis of the call option open interest.

KRYS closed at $39.81 on Friday. Every call option from $40 to $85 has just gone from out-of-the-money to deeply in-the-money. That's a total of 18,587 call options for the December expiry alone. Some of the call option holders may have taken profits and closed their position, like the 2,000 volume at $70 strikes. But if most of these calls are still open, that is 1.9 million shares locked in delta neutral hedging. That's 12.4% of the float.

Some shorts may have covered, but no doubt more shorts came in hoping for an offering that would take down the stock price. With that kind of short interest and the significant amount of open interest in deep in-the-money calls, one can't rule out another massive run for the rest of the week. The call option volume and open interest at $90 and above is a decent size, but not what I expect to be the main driver for a squeeze. For now. Keep a close eye on volume on these higher priced strikes. If longs strike aggressively to hit shorts while they are in a weakened spot, they could really accelerate this stock price. There are 3,137 open call interest at $90 and above, representing 313,000 shares potentially locked in delta neutral hedges. 

Next, ISPC. A few days ago I brought up iSpecimen Inc. (ISPC) as a potential twin play to Longeveron Inc. (LGVN) and bound to hit $30. Today it came the closest yet. Despite a $21 million private placement priced at $12, the stock quickly covered its initial losses on this news and shot up as high as $28.98 before ending the day at $20.42, up 17%. I've made an effort to compare ISPC to LGVN in day-to-day trading. I'm not going to do that anymore as it should be obvious by now that ISPC has as good or better squeeze potential and staying power as LGVN. 

ISPC first shot up after announcing that it was Selected by U.S. Government and Private Researchers to Supply Critical Human Biospecimens for Advanced Phase of COVID-19 Research. The stock is reacting positively for obvious reasons, beyond just the tight float and potential for a squeeze. With a rise in a new variant, ISPC will likely see another uptick in demand for its COVID biospecimens. Particularly since the government and society at large will be very interested to know if and how fast the Omicron variant has spread beyond southern Africa, as well as how the variant reacts to vaccinated versus unvaccinated people. ISPC is ideally and uniquely positioned not only as a LGVN squeeze twin, but as a COVID play. Keep in mind that there are multiple vaccine plays available to invest in and trade but not too many that collects specimens like ISPC. 

GOVX dropped 9% to $4.26 after rising 21% on Friday. It looks like more COVID variant plays took a hit from their Friday runs but I don't think the worry over this new variant is finished quite yet. Plus it just highlights the risk of mutations in the future - leading to an opportunity to speculate on these types of stocks. GeoVax is working on a universal vaccine good for variants. This is particularly important as worries of the Omicron variant spreading rises. The MRNA vaccines were designed to encode the prefusion stabilized spike protein with the goal of inducing high levels of neutralizing antibodies. But this can leave them susceptible to variants that partially escape neutralization by vaccine induced antibodies. GeoVax's vaccine technology platform is known to induce a balanced humoral (antibody) and cellular (T-cells) response against the multiple encoded immunogens, potentially limiting immune escape against emerging variants. As long as society relies on the MRNA vaccines, it will always be chasing variants and people will be in need of boosters. GeoVax, if successful in developing a vaccine based on its technology, will eliminate that need. Right now it's still in the early stages, but most traditional vaccines that take years to develop would be in early stages right now for COVID-19. 

GOVX has a unique position of being a "MAGA vaccine" in that the CEO David Dodd has said that he believes in people making personal health decisions, rather than the usual biotech CEO who would say to get the vaccine right away in order to sell their vaccines. He is frequently on right wing news media outlets like Newsmax as a vaccine expert and is a Republican. I talk about this in more detail in this post. Why would this be important? Most unvaccinated people in the U.S. lean towards conservative or GOP beliefs. With how fractured the United States is politically, if someone represents "team GOP" and has developed a vaccine that is deemed to be done in a more traditional way, they will be much more likely to convince Republicans to take it. Other vaccine candidates led by companies without stark political leanings don't have such a market. They are up against MRNA booster shots. GeoVax's vaccine could have a very distinct and unique untapped market, assuming the company is successful in proving efficacy during later-stage trials and gets FDA approval. Currently unvaccinated people will wait for the GeoVax vaccine if they trust that the company is making the right one for them. And CEO David Dodd is already out there building that trust in the media. 

AHPI: Dropped 16% on Monday after it rose 55% on Friday. Though it did see buying throughout the day after the initial tank, closing close to its day high. It's a producer of ventilators and other medical equipment. As the potential impact of Omicron is unknown, there could be a substantial rejuvenation of demand for AHPI's products as governments and hospitals prepare for a potential spike in serious COVID cases. This one is rather well known as a COVID play so there is not much more to say. AHPI ran to $45 from $3 in a couple of days on the initial COVID scare, so massive potential remains.

ISPC can be considered LGVN's twin because both of them were recent IPOs in the health care space over the past year, plus they have very similar floats. AHPI and GOVX are also quite comparable as health care microcap stocks with small floats. (These numbers exclude shares from ISPC's $21 million placement):

All three of ISPC, AHPI and GOVX sit at just a small fraction of LGVN's market cap. I think all of these COVID plays are better deals right now because the recent news developments relate to immediate revenue-generating activities, at least for ISPC and AHPI. While GOVX is in a speculative startup phase like LGVN, any positive developments that are made for GOVX's vaccine candidate should send the stock flying. Based on relative market caps to LGVN and better revenue generating potential in the near term, never mind $30, these stocks could hit $100. But let's first aim for $30. ISPC almost got there today. 

Disclosure: I am long GGPI, KRYS, ISPC, GOVX, AHPI.