Why a Faze Holdings short squeeze could be bigger than BBBY, GME and AMC
It’s home to the most popular e-sports players in the world, has Snoop Dogg on its board of directors, and is followed by an army of 500 million social media followers.
You can see how freshly-listed esports and Gen Z lifestyle media company, Faze Holdings (NASDAQ: FAZE), could become the world’s next big meme stock sensation.
But right now, Faze stock is by-far the most shorted in the United States.
According to Bloomberg Data, just over 75% of Faze stock on the market is being sold short by bearish traders.
The short float is 20% larger than the second-most shorted stock in the U.S. right now – plus-size women’s clothing retailer, Torrid Holdings (NYSE: CURV).
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Could Faze stock see a massive short squeeze?
Faze Holdings market cap of US$1 billion, is markedly similar to that of Bed Bath and Beyond before it found itself at the centre of an explosive short squeeze this month.
Currently though, the cost to borrow Faze stock is extraordinary, in some cases investors have reported being offered 700%, implying extremely aggressive short selling against the company is taking place.
But such an extreme cost to borrow could become a key factor in an explosive short squeeze – naturally, the higher the cost to borrow, the less inclined shorter sellers will be to hold a loss-making position.
So with an extreme percentage of its float short sold, an extreme cost to borrow, and huge brand awareness and popularity amongst Gen Z and Millennials, Faze Holding appears well positioned for a major squeeze.
It just needs buying volume.
This can come through simple stock or options buying (either by a coordinated short squeeze or on surprise positive news), or a major gamma squeeze.
In the case of Faze Holdings, a gamma squeeze looks to be in play.
According to market data as of August 18, imminent strike price points that would put the largest volume of calls options ‘in the market’ are:
- $15 with open interest at around 3600
- $17.5 with open interest at around 3700
- $20 with open interest at around 6500
Should the Faze stock price move over $20 and 140% of the Faze equity float would be ‘in the market’.
At the other end of the the options spectrum are market makers.
As share prices get closer to strike prices, as the Faze price has been doing in recent days, the short gamma positions of market makers get larger and they will likely buy shares to hedge their exposure and the risk of major losses.
In the case of Faze, such a gamma squeeze would ultimately exacerbate a traditional short squeeze, as traders close out their huge (and expensive) short positions and are forced to buy Faze stock to minimize losses.
Could the Faze social following play a role?
Faze enormous Gen Z and Millennial social following would seeming give a coordinated short squeeze the type of velocity that has never been seen before.
Faze biggest social media presence is across TikTok (105m), Instagram (11.7m), YouTube (8.7m), Twitter (5.7m) and Twitch (500k).
However, on Reddit – the home of ‘Apes’ who love nothing more than pumping their chests in the face of institutional short sellers – it appears Faze is yet to gain major traction.
R/Faze has just 6,000 members, and according to Ape Wisdom which tracks stock mentions across the major investing, trading and finance subreddits (including WallStreetBets), Faze is not even in the top 100 most mentioned stocks.
The big question; is the massive Faze social following a sleeping giant and can those followers be activated and motivated in a short squeeze scenario?
If they could, a faze stock short squeeze could be devastating for the aggressive short sellers.
Faze stock news flow
On August 15, Faze Holdings released its Second Quarter 2022 Financial Results. The results call was introduced by Snoop Dogg.
There was little to be excited about in the financials. The company reported a loss for the quarter of -$4.1 million, on revenue of $18.8 million, which was an increase of 22% year-over-year.
The company reported a strong outlook for sponsorship revenues for its esports teams and merchandise sales.
But it is early-stage Web3 and Metaverse development that could be a catalyst for news flow. The company’s Chief Executive Officer, Lee Trink, told investors management is currently building “foundational partnerships” in the Metaverse.
“Investors are making significant bets on who the Metaverse winners will be,” said Trink.
“Faze has a large and engaged audience that can enable us to participate with whomever the winners of the Metaverse will be. And because we don’t require massive CAPEX to participate, we’ll aim to usher our audience in and out of these Metaverse environments.
“Numerous companies building Metaverse environments cite gaming as foundational to the experience they’re building.”
Faze Holdings went public on the NASDAQ in July via a $725m SPAC.
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