Every once in a while, you get a “perfect storm” brewing for a stock. Everything just lines up the right way.
We saw it with Gamestop (GME) earlier this year — it had everything right going for it:
- Activist Shareholders
- Changes in Leadership
- Heavy Short Interest
- High Stock Trading Volume
- High Call Option Volume
Of course, GME is GME. It broke the market. It did some serious damage to some hedge fund guys. But not all stocks will do that.
Still, we’ve had some other movers this year. Heck, last month we saw SPRT and BBIG both have big runs.
These and other similar trades are all driven by:
- A new catalyst
- Shorts covering
- And call options breaking the market…
Leading the stock to rocketship higher.
And now, we have another stock profit potential brewing… so let’s use the above recipe from GME to break this opportunity down.
An activist shareholder added 2 new members to the Board of Directors. You can check that box off.
Changes in Leadership
Following the addition of those 2 board members, the Chairman at the time stepped down.
8 months later, on August 30 of this year, the company brought on a new CEO. Keep this at the back of your mind as we consider the timing later in this post.
Heavy Short Interest
“Short interest theory” basically says that higher short interest = higher chance of explosive upside move. Anything above 20% is generally considered “extremely high”, but a couple % points below that is still a LOT.
As I write this, 18% of the stock’s float is shorted. That means just under ⅕ of ALL shares are shorted.
High Stock Trading Volume
This stock traded 33% of its entire float in a single day earlier this week. That’s a catalyst right there. Lots of volume.
High Options Trading Volume
High options trading volume is the “gas” that adds to the “fire” of this trade… and we’re awfully close.
During last week’s volume spike, this stock traded 32,000 call option contracts on short term options. Should that volume keep up, then the option dealers will be overwhelmed…
And they will be forced to buy the stock.
This one’s lining up to be massive… yet the reason we found it was due to some key insider trading.
Earlier, I mentioned the timing of it all. Here’s where it gets interesting:
One day after the company announced the new CEO, we saw large insider purchases from 4 separate directors.
One of them was the activist who was brought on board back in December, where he picked up 100,000 shares of the stock in a single trade.
Are you paying attention yet? See where this is going?
If you want to see the stock…