jaudio shorts

Success, Failure, and More Short Squeezes

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I am now about 2 weeks since my first short squeeze buy. In my last blog, I outlined my strategy with entry points, doubling down, and when I will bail if it continues to sink. In this blog I will be more specific on the strategy, and I will outline how I rate the performance of each.

First of all, I must say that I personally don't like any of my short squeeze picks. All of these companies have an obscene short interest ratio for a reason: there are professional investors that have discovered the major problems with these companies and have acted on the information. Knowing nothing else other than the short interest ratio tells me by laying money long when many others are laying it short, I am part of a lonely minority. In addition, I have put less research into these short squeeze picks, so make that two strikes against me. Despite this, I have yet to worry about the picks and their performance. I still have a substantial cash position to spend on them, so I still have a ways to go before I am bankrupt. My short squeeze picks as of 2-21 are as follows:

WGO, CCU, TOC, GY, BRC, BHS, CC, TWP, SFE, BLG, GTN, SIRI, HZO, GHS, CRZ

I set a limit order for about 30 short squeeze candidates, and the ones above met the limit. Since I only have $5000 on the line with each buy in, I looked forward to being wrong on so I could get to doubling and tripling down. So far, only two plays, GHS and GTN crossed below the 5% threshold for doubling down, and GTN has dropped enough that I'll be doubling again soon. The rest have been rather calm. CCU (Clear Channel) actually popped 12% on great earnings news the day after my buy in, but I didn't see it until the markets closed. It has since retreated 5%, but I fully expect it to break back through the 10% mark and I can dump it.

I have no limit order to sell, only because when a short squeeze candidate actually gets "short squeezed" it can rocket upward and a limit sell order can make you miss potential profits. If one of them does pop, I have found the best policy is to let it bounce off its price ceiling before selling, but watch it closely.

Throughout this competition, I will be buying short squeeze plays and rating their performance once I sell the position. Here's my own "jaudio shorts" rating system of my short squeeze plays.

A---20% plus gain.
B---10-20% gain
C---0-10% gain
D---0-5% loss
F---5% plus loss

My sell criteria are simple.

1. Sell any position that has a 10% plus gain
2. Sell any position within 30-40 days after initial buy, regardless of gain or loss
3. Sell any position with a 10% loss after being "all in" at $30k.

Sell Rule #1 is in place because a 10% or more gain fits my definition of a "pop". A real short squeeze pop will be well beyond 10%, however, I will be content with 10%, and if I miss out on potential future profits, no problem. It's the cost of doing business. Sell Rule #2 is in place because none of these short squeeze plays are "long term" buys. Either they pop short term, or I will lose money. No use holding them longer than 40 days. Sell Rule #3 is in place to stop the bleeding before things could get worse. It's that simple. The rules are in place, and I will trade by them come hell or high water.

For the rest of my portfolio, I have been able to withstand some of the hits the markets have been taking as of late. I still have too much money shorting China with FXP, and it leaves me vulnerable, especially because FXP swings wildly. Although I am trying to trim my position in FXP, it hit my mark for a limit buy at just under $86. I was able to dump the buy with a 10% gain, but I would still like to see it break $100 so I could reduce the position to 4% of my portfolio. The other shorts in my portfolio all have limit sell orders for further reduction, although I won't totally abandon the shorts. On the long side, I have some money in GLD, and SDY, which have weathered the storm nicely. I really would like to see the Dow, Nasdaq, and S&P dip into bear territory for a few weeks before I start going long. Going long looks more and more attractive, but it's a little too early. I'll give it some serious thought around mid March.

Until then, I still have a lot of money aside in cash, currency ETFs, and bond ETFs. All told, it is almost $300k, but I stay in compliance thanks to the ETFs. It's pretty conservative, but it will allow me to unleash when the time is right.

It's been fun so far.

---Jonathan