Options Corner: Here’s Why MARA Holdings Deserves To Be On Your Short-Squeeze Watchlist
For cryptocurrency investors, the blistering rise of major digital assets has been nothing short of remarkable. Last month, the total market capitalization of all virtual currencies reached nearly $4.2 trillion. However, blockchain enterprises like MARA Holdings Inc (NASDAQ:MARA) have not fared as well. Since the start of this year, MARA stock is up less than 3%. For context, the venerable Dow Jones is up roughly 8% during the same frame.
Still, speculators may not want to give up on MARA just yet. According to the latest information, the blockchain miner’s short interest stands at 35.6% of its float, which is massive. To be sure, no one number exists that officially separates the threshold between high short interest from a normal reading. That said, Charles Schwab notes that a figure of 10% or higher could indicate a warning sign.
Intuitively, securities that attract bearish activity tend to have a cloud hanging over them. However, extremely elevated short interest is also risky for the bears. That’s because a true short position is a credit-based transaction. Essentially, the sold securities that initiate such a trade are loaned on credit. Therefore, either way, the lending broker must be made whole — and that’s where both the trouble and opportunity lie.
Obviously, short sellers expect the targeted security to fall in value. If so, the red ink allows these speculators to buy back the shorted securities at a discounted price and return them to the broker, with the difference pocketed as profit. However, an unexpected rally may force speculators to exit early, forcing a massive wave of buy-to-close transactions.
The end result? That would be a …
About The Author
