CVNA Squeezing, ROOT and RXRX are Next

Earlier today we stated that Root, Inc. (ROOT) and Recursion Pharmaceuticals, Inc. (RXRX) were next to squeeze after Carvana (CVNA). One month ago we mentioned the gamma squeeze potential on CVNA. Now that this is at hand and the stock has more than doubled, it's time to go long on two other heavily shorted stocks that stand to benefit from the CVNA squeeze as desperate shorts have to cover. 

The strategy worked perfectly as ROOT increased 19% and RXRX increased 16% on the day while CVNA rose another 40%. This will be just the beginning as shorts are hemorrhaging on multiple related positions. If you look at the chart for the day, it becomes very clear how highly correlated these three stocks are right now. This is undeniably a sign that shorts, particularly algo HFT shorts are covering simultaneously held positions. 

CVNA made a $126 million investment into ROOT and has embedded its insurance program into its systems. So any improvement in financial performance on CVNA implies that ROOT will also follow. It currently has 1.4 million in short interest, representing approximately 15% of the float. Not nearly as much as CVNA, but considering that ROOT trades only around 200,000 shares or so in a day, it can really take off in any sort of squeeze. Or as people realize that these two companies are financially linked and CVNA profits come heavily into ROOT. 

RXRX has doubled in price recently after a $50 million investment made by NVIDIA Corporation (NVDA). Shorts expected it to come down by now, except it hasn't, and is challenging new year highs. It has 18.5 million shares short, representing approximately 16% of the float. Recent shorts are now down over 100% and would be scrambling to cover on top of any short on CVNA. Historically, shorts on RXRX seem to be in at an average price of around $10. They were in profits but now they are staring down losses. 

Another thing to consider is that options expiry is coming up on Friday, and the increase in volume and interest in ROOT and RXRX is also resulting in higher volume on the call options. This leads to gamma squeeze potential. 

ROOT generally has very little options outstanding, but today's spike in volume nearly matches the entire open interest prior to today:

The levels to watch are $12.50 and $15.00. 48 hours ago it would have been questionable if the $10 calls would even finish in-the-money. Now if the $12.50 and especially the $15 strikes finish in the money, that could be over 300,000 shares locked in option hedging strategies. That might not seem like a lot but keep in mind with all of today's action, ROOT only traded a million shares. Compare that to 116 million shares traded on CVNA today. If ROOT can trade even 5 million shares in a day, it could rocket will beyond $15. 

RXRX had far larger volume on its calls expiring for the week:

Over 3,400 $15 strikes traded, representing over 340,000 shares upon exercise. That's more than the open interest from the previous day of 2,900. All of these options are now in the money and it's unlikely that option writers were expecting that a day ago, creating a lot of problems for them as these calls were worth just $0.20 prior to today. Over 1,100 $12.50 strikes traded, in addition to the 2,100 in open interest from the previous day. The $17.50 strikes are another area of interest as they traded over 2,100 in volume today, more than double the previous day's open interest. They are still priced as a large gamble at $0.35, but keep in mind the $15 strikes were trading at that price a day ago. 

The high correlation in the charts, the short interest, the spike in volume of in-the-money calls and the margin calls on multiple positions simultaneously of suffering shorts lead to the conclusion that ROOT and RXRX are likely to continue their squeeze.