For this column, I will be using stocks on fintel.io’s Gamma Squeeze Leaderboard list. According to the website, “A Gamma Squeeze is a specific event that happens when the price of a stock climbs suddenly due to actions in the options market. ” Specifically, when the value of call options increases due to large-scale purchases of “short-dated call options,” the seller of the call options has to short the name and simultaneously buy the stock. It does that in order “to hedge against ” its short position. When the stock’s share price climbs very quickly, a “gamma squeeze” is created, turning the name into a short squeeze stock winner.
In my view, there are several companies with very good fundamentals on fintel.io’s Gamma Squeeze Leaderboard list. As a result, if these three short-squeeze stock picks do not undergo a huge Gamma Squeeze, I believe that they can still reward investors over the long term.
Fintel.io uses a Gamma Exposure Score to help compute its Gamma Squeeze Leaderboard List. Gamma Exposure measures how quickly changes in a stock’s price will alter the value of its options. When Gamma Exposure is negative, it means that investors are buying more puts and/or selling more calls in a name than taking the opposite positions.
Etsy (ETSY)
Etsy (NASDAQ:ETSY) is an e-commerce website that specializes in enabling artists to sell their products.
The stock has a Gamma Exposure Score of -$6.26 million, and its Put/Call ratio has tumbled nearly 47% in the last week. Fintel.io gives Etsy a total Gamma Squeeze Score of 92.86, ranking it as the ninth-best Gamma Squeeze candidate overall.
Meanwhile, in the first quarter, Etsy’s top line climbed 10.6% year-over-year to $640.87 million. Further, the company is profitable, as it generated a net income of $74.5 million, although its net income did drop 11.6% year-over-year.
Etsy’s financial results will likely improve significantly as consumers’ need for experiences is satiated, causing them to spend less on experiences and more on goods. I believe that this change could begin to happen in the second half of this year.
Etsy’s forward price-earnings ratio of 28.3 times is not particularly high.
Given the company’s high Gamma Squeeze Score and good fundamentals, I think that it’s one of the best short-squeeze stocks for a spectacular rally.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) has a Gamma Exposure Score of -$42.7 million, and its Put/Call ratio tumbled 39% versus last week. Fintel.io gives Etsy a total Gamma Squeeze Score of 92.84, ranking it as the eleventh-best Gamma Squeeze candidate overall and one of the best short-squeeze stocks for a spectacular rally.
PayPal is a leader and arguably the leader in the lucrative fintech sector. The company delivered “beat-and-raise” first-quarter results. Specifically, it reported Q1 earnings per share, excluding some items, of $1.17, compared with analysts’ average estimate of $1.10. Moreover, it raised its 2023 adjusted EPS guidance to $4.95 from roughly $4.87.
However, the stock fell in the wake of the results because the company provided Q2 adjusted EPS guidance of $1.15-$1.17. The midpoint of the guidance was slightly below analysts’ average outlook of $1.17.
Like Etsy, PayPal will benefit from a normalization of consumers’ spending on goods versus experiences.
PYPL stock is trading at a rather low forward price-earnings ratio of 12.9 times.
Deere (DE)
Deere (NYSE:DE), which specializes in manufacturing and selling farm equipment, has a Gamma Exposure Score of -$18.67 million, and its put/call ratio fell 27.34% versus last week.
The company is benefiting from high food prices, which has raised farmers’ income, enabling them to buy much more new machinery from Deere.
In the first quarter, Deere’s revenue jumped 32% year-over-year to $12.65 billion, while its net income climbed to $1.96 billion last quarter from $903 million in Q1 of 2022.
In a note to investors on April 14, investment bank DA Davidson kept a $520 price target and a “buy” rating on DE stock. The bank expects Deere to benefit from its change to a “services-based subscription model for both autonomy and precision agriculture,” The Fly reported.
DE stock has a low forward price-earnings ratio of 13 times. Thus, that makes it among the best short-squeeze stocks for a spectacular rally in my book.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.