Super Micro Computer Inc (SMCI) has one of the largest short positions in the S&P 500, with a high squeeze risk indicator. Increased volatility raises the probability of a potential short squeeze.

Super Micro (SMCI) presents an intriguing situation due to its substantial short position.

Short sellers have continued to increase their holdings as the stock price declined and have remained steadfast for several months. Analyst recommendations have shifted from predominantly buy ratings to mostly hold.

Currently, 15% of the float is shorted, one of the highest percentages in the S&P 500. The short notional exceeds $4.2 billion, representing the largest short position among stocks with potential squeeze risk.

The stock is also highly volatile, exhibiting 100% annual volatility, or approximately 6% daily. The daily Value at Risk (VaR) for shorts is $240 million, indicating risk levels comparable to much larger stocks.

The squeeze risk indicator stands at 90, the highest in the S&P 500, having risen from 20 recently.

The short position has tripled since July as the stock has lost a significant portion of its value. The squeeze indicator tends to rise during bear market rallies while remaining nearly zero during downward trends. The constant short position means there has been no squeeze.

SMCI has recently experienced swings of 20% around earnings announcements, both upward and downward, with the next earnings report scheduled for November 1.

Given the current indicators, a squeeze is likely if the stock price increases, particularly if shorts begin to incur losses, which is quite possible given the average daily movements of 6%.

Throughout the year, options have priced in movements smaller than the actual daily fluctuations. The stock tends to mean revert within the week, resulting in weekly moves that are smaller than anticipated. This dynamic reduces the short-term risk of a squeeze.

The critical question remains: who will sell their short positions if the stock surges, and at what price?

Super Micro’s high short interest and rising squeeze risk indicator suggest significant potential for a squeeze if the stock price rises. Volatility remains a key factor to watch ahead of earnings.

Want to know more?

Access this data in real time using S3’s BLACK APP or Contact us to get started.