Hedge funds on high alert for Aussie Reddit short squeezeSarah Thompson, Anthony Macdonald and Tim BoydJan 27, 2021 – 9.34pmSaveShareThe Reddit army has arrived.As US-based hedge funds scramble to understand how a new band of amateur traders can wreak havoc on their trading strategies with relative ease, their Australian counterparts are assessing short-squeeze vulnerabilities in their own portfolios.Goldman Sachs reckons the most at-risk stock for a short squeeze on the ASX is funeral home operator InvoCare. Brendan EspositoThe obvious place to start is crowded trades – anything with a big portion of its free float reported as short.Webjet tops the list on the ASX with 15.3 per cent of its issued equity in the hands of short-sellers, ahead of seafood farmer Tassal Group – 13.6 per cent shorted – and then buy now, pay later tearaway Zip Co, healthcare imaging outfit Pro Medicus and biotech Mesoblast.But Goldman Sachs’ Australian equities desk told clients on Wednesday that the top short-squeeze candidates were on another list – those with a high proportion of shares shorted compared with the average daily volume traded.AdvertisementOn a “days to cover” basis, which calculates the number of trading days required to close out all short interest in a stock, Goldies reckons the most at-risk stock for a short squeeze on the ASX is funeral home operator InvoCare.Invocare has 11.6 million shares shorted, or 8.1 per cent of its free float, and it would take 33 days to unwind all those shorts based on its average daily trading volume.Next on Goldies’ short-squeeze list was Tassal Group, which has seen its short interest explode 106 per cent in the past quarter, closely followed by poultry producer Inghams Group.Others in the top 10 included Cimic, Bendigo and Adelaide Bank, Metcash, Seven Group Holdings, Pro Medicus and Washington H. Soul Pattinson and Co.The biggest target by size in the screen was resources behemoth BHP, which has 3.6 per cent of its free float shorted and would take 16 days to cover. While Street Talk isn’t doubting the Redditors power, a BHP short squeeze might be a touch too big for the trading army that communicates via the forum r/wallstreetbets.It all comes as hedge funds are on high alert for short squeezes after traders from online internet forum Reddit stormed US markets to wage war on two hedge funds in particular, that had been shorting video game retailer GameStop.The Redditors sent GameStop stock soaring almost 250 per cent since Friday, and the short squeeze attack forced one of the targeted hedge funds, Melvin Capital, to source a $US2.75 billion rescue package from Citadel and Point72 this week.Get a first look at tomorrow's headlinesSign up to the Street Talk First Look newsletterSIGN UP NOWSarah Thompson has co-edited Street Talk since 2009, specialising in private equity, investment banking, M&A and equity capital markets stories. Prior to that, she spent 10 years in London as a markets and M&A reporter at Bloomberg and Dow Jones. Email Sarah at sarah.thompson@copyright linkAnthony Macdonald co-edits Street Talk, specialising in private equity, investment banking, M&A and equity capital markets. He has 10 years' experience as a business journalist and worked at PwC, auditing and advising financial services companies. Connect with Anthony on Twitter. Email Anthony at a.macdonald@copyright link
SXY Price at posting:
35.0¢ Sentiment: Buy Disclosure: Held
