Low float stocks can be some of the most volatile stocks in the market. If you mix in a short squeeze, the potential short-term gains in a low float stock can be extreme.

A stock's float is the number of shares that trade freely on the public market. Because insiders and institutional investors don’t typically trade their shares on a daily basis, those shares don’t typically contribute to a stock's near-term liquidity. Float is the number of shares that remain after accounting for insider and institutional ownership.

Why Is It Important? When a stock gains positive momentum in the market, momentum buyers can rush in all at once. If a stock has a high short interest, short covering can quickly ramp up demand for shares, triggering a short squeeze. Since low float stocks have relatively few shares trading freely, a major imbalance in supply and demand can serve as rocket fuel for share price.

Buying a low float stock with high short interest isn’t a guarantee of a short squeeze. There still typically needs to be some form of catalyst to get the stock moving in the first place. However, traders can keep an eye on these stocks for any signs of life to try to catch most of a potential big move.

Short Squeeze Candidates: Here are three materials sector stocks that have all the ingredients for a short squeeze.

Green Plains Inc GPRE
Green Plains produces fuel-grade ethanol and corn oil. The stock is already up 186.8% year-to-date so far in 2021, demonstrating its potential for volatility. Green Plains has reported negative revenue growth in each of the past four years, but as many meme stock traders have realized in 2021, short squeezes are technical market phenomena and don’t necessarily have anything to do with the company’s underlying business fundamentals or the stock’s long-term outlook.

Green Plains’ float isn’t minuscule, but it's relatively small at around 42.5 million. However, 23.1% of its float is currently held short, suggesting a lot of short-sellers are already feeling the heat from the 2021 rally, and the potential short squeeze could be just getting started

Timkensteel Corp TMST
IT Tech Packaging produces alloy, carbon, and micro-alloy steel products. The stock’s 37.2 million-share float and its short percent of float of 16.3% are the perfect ingredients for a potential short squeeze.

In addition, short squeeze traders have frequently targeted stocks trading under $15 per share this year, and Timkensteel shares currently trade at just $13.15. Finally, the stock has repeatedly demonstrated its potential volatility, gaining 187.1% year-to-date and spiking from under $5 per share in early February to above $12 by mid-March.

Piedmont Lithium PLL
Piedmont Lithium explores and develops mineral properties.

Piedmont’s 23.6% short percent of float is the highest among the three stocks mentioned, and its 2.62 million-share float is by far the smallest, providing an opportunity for a huge squeeze. Piedmont also has a history of extreme volatility. In September 2020, the stock spiked from under $6 to as high as $54.50 in less than a month when the company announced a supply deal with Tesla Inc. TSLA.