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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 the 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 stocks with floats of under 1 million shares that have all the ingredients for a short squeeze.

Carver Bancorp Inc (NASDAQ: CARV)

Carver Bancorp is a commercial and consumer bank headquartered in New York. The stock is also the perfect low float short squeeze candidate.

Carver’s 560,000-share float is minuscule, creating plenty of opportunity for extreme volatility if trading volume rises. Carver also has 18.5% of its float held short.

The stock has previously demonstrated its potential for extreme volatility. In a matter of days back in June 2020, Carver’s stock price rocketed from under $2 to as high as $22.97.

Sequential Brands Group Inc (NASDAQ: SQBG)

Sequential Brands promotes, markets, and licenses consumer brands, including Martha Stewart, Jessica Simpson and AND1.

Sequential Brands has reported net losses in each of the past five years, but as many so-called 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.

Sequential Brands has a tiny float of just 810,000 shares and a short percent of float of 26.6%, highest among the three stocks mentioned. Finally, short squeeze traders have frequently targeted stocks trading under $10 per share this year, and Sequential shares currently trade at just $10.06.

Voxeljet AG (NASDAQ: VJET)

Voxeljet manufactures industrial 3D printing systems.

Voxeljet has a tiny float of just 260,000 shares and a 17.6% short percent of float. The stock also has a history of extreme volatility. In just over a week back in February, Voxeljet’s share price climbed from under $15 to as high as $40.