A powerful short squeeze is currently unfolding across U.S. equity markets, with options data signaling a surge in speculative buying.
As of July 29, the five-day moving average (MA) of net call volumes for the most shorted stocks soared to approximately 4.2 million contracts, the second-highest level ever recorded, according to data shared by financial markets commentary platform The Kobeissi Letter.
This spike approaches the euphoric highs of the 2021 meme stock mania, which was led by the explosive rally in GameStop (NYSE: GME).
In the current market, call volume for these heavily shorted names has quadrupled in just the past few weeks, signaling a scramble by short sellers to cover positions as prices rise.
Meanwhile, the broader market is also seeing a burst in call activity. The five-day MA of net call volumes for all other stocks has doubled to around 10 million contracts, its highest level in four years.
The data suggested that shorts are being rapidly unwound, contributing to the ongoing rally in the most shorted segments of the market.
Indeed, this short squeeze comes amid a resurgence in meme stock activity and a broader market rally.
The return of meme stocks
In early July, retail traders helped trigger sudden rallies in names like Krispy Kreme (NASDAQ: DNUT), GoPro (NASDAQ: GPRO), and Opendoor (NASDAQ: OPEN), driven by a renewed appetite for speculative bets.
At one point, Goldman Sachs’ Speculative Trading Indicator spiked to its highest level since the pandemic-era meme stock frenzy, reflecting a surge in trading of unprofitable and heavily shorted stocks.
On July 27, Bloomberg reported that investor optimism is peaking, with margin debt on the NYSE hitting an all-time high, surpassing even the tech bubble levels. However, the report also noted signs of strain, as the latest meme stock rally fizzled quickly and Bitcoin (BTC) retreated from recent highs.
A powerful short squeeze is currently unfolding across U.S. equity markets, with options data signaling a surge in speculative buying.
Featured image via Shutterstock
