What is American Airlines - Stock Surges despite Record Loss: Short Sellers, Reddit Stock Forum
American Airlines - Stock Surges despite Record Annual Loss

American Airlines shares jumped by more than 30% on Thursday despite posting a record annual net loss of $8.9 billion, a trading frenzy fueled by mentions in a Reddit chat room. “AAL the next GME?” said Reddit user u/cardiffgiantthe1st in an online discussion Wednesday, referring to the stock tickers of American and GameStop Corp., the video-game retailer that has quintupled in value this week alone.

Short interest in American was 25% of the company’s float, according to FactSet as of Thursday morning, compared with 14% of Spirit Airlines’ and about 5% of United Airlines’, CNBC report.

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American Airlines shares jumped - Short-Squeeze Risk

According to Bloomberg, American’s stock gain adds to a flurry of share increases this week as Reddit-fueled retail traders take on short sellers and drive up prices. With stock after stock, legions of day traders have identified companies with high levels of short interest and piled in. In the case of GameStop, the soaring price has forced many short sellers to give up their positions.

Short interest as a percentage of American’s free float is about 29%, according to data from S3 Partners. No other major U.S. airline has short interest of more than 5%.

American is scheduled to report fourth-quarter earnings on Thursday. Like its rivals, the airline has been contending with the unprecedented collapse of air travel because of the coronavirus pandemic.

“We think the stock is a high risk for one of the recent retail-investor-driven short squeezes we’ve seen play out,” CFRA analyst Colin Scarola wrote in a client note.

The firm also elevated Spirit Airlines Inc. from sell to hold for the same reason. Short interest is about 16% of Spirit’s free float, according to Vertical Research.

GameStop Surge - Why?

GME and others have shown up in the “WallStreetBets” Reddit chat room where a wave of at-home traders bought up heavily shorted stocks, sending shares soaring and squeezing out short selling hedge funds. Short selling is a strategy in which investors borrow shares of a stock at a certain price in hopes that the price will fall below that level when it’s time to pay for the borrowed shares.

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