If there is a theme that has played out repeatedly in 2021 that is the short squeeze. Some of the names that have seen huge price surges have been Gamestop Corp (NYSE: GME) and AMC Entertainment Holdings (NYSE: AMC). The most recent player in this high-risk game of chicken is Support.com, Inc (Nasdaq: SPRT) In this game, it’s not about earnings or valuation, it’s solely about who has the highest short interest. While these names may be past their short-covering prime, let’s take a look at who may be next according to unusual option activity.

What is Short Interest?

Short interest is the total number of shares that have been borrowed and sold. A short expects the stock to decline so that they can buy the stock back at a lower price, making the spread. Those that are short the shares are in a vulnerable position since they must repurchase them to close the position.

Short interest is generally measured in the percentage of the float and the short ratio. The float is the total number of shares outstanding minus the restricted shares. The short ratio determines how impactful the repurchase of the shares will be on the price by comparing average volume to the short interest.

Normally, short interest that is greater than 5% of the float and a short ratio of 5 would be significant. However, many of these squeeze candidates are low float stocks with substantially higher short interest as a percentage of the float. For example, SPRT has short interest of 33.44% according to highshortinterest.com.

Who’s Next on the ‘Short’ List?

Over the past week, high short interest stock SPRT has seen its price rally from around $10 to over $60 last Friday. With that sort of built-in potential, it makes sense that traders may be scrambling to find the next AMC, GME, or SPRT.

One way to track money flow is through the options market. Identifying unusual option activity in high short interest stocks can be a nice heads up of who may be targeted next.

Here are four names that have over 20% of its float shorted that saw unusual option activity toady:

• SmileDirectClub Inc (Nasdaq: SDC)
  1. 26,800 3 SEP 21 $6 call mostly BOT @ $0.14 to $0.65

• Ontrak Inc (Nasdaq: OTRK)
  • 5,000 17 SEP 21 $15 calls mostly BOT @ $0.30 to $0.99

• Workhorse Group Inc (Nasdaq: WKHS)
  • 4,100 10 SEP 21 $10.50 calls mostly BOT @ $0.37 to $0.45

• Corsair Gaming Inc (Nasdaq: CRSR)
  • 20,700 17 SEP 21 $30 calls mostly BOT @ $0.55 to $2.00

Conclusion

While there’s never a guarantee that these high short interest stocks will take off like SPRT did last week. However, with the volatility skew of these stocks, you don’t have to risk a lot to make money trading a long call vertical. The skew can really allow you to achieve high reward/risk trades using verticals.