Sat. Aug 13th, 2022

Shares of

Clover Health Investments Corp.

CLOV 75.92%

soared after emerging as the latest target for retail traders on Reddit forums.

The healthcare company’s share price rose as much as 109% Tuesday before retreating but remained up over 70%. That follows a 32% jump Monday. It is currently being bought and sold above $20 a share, while it was valued at $7.64 at the end of last month. Over 125 million shares were traded Monday, nearly an eightfold increase from Friday.

Clover Health went public Jan. 8 by merging with a special-purpose acquisition company, or SPAC, run by venture capitalist

Chamath Palihapitiya.

Founded in 2013 by healthcare entrepreneur

Vivek Garipalli

and based in Nashville, Tenn., it provides private health insurance and Medicare plans in eight U.S. states.

The firm came under pressure several weeks later after Hindenburg Research put out a report alleging that it misled investors, which Clover Health’s management disputed. SPACs have since fallen out of favor among investors as inflation concerns spurred a shift away from growth stocks and many have seen sizable declines.

Some Reddit users are speculating that Clover Health could be the next short squeeze, which is characterized by a high level of its shares being sold short. In this case, if the share price rises significantly, some investors might be forced to buy the stock to cover their short positions, which could accelerate upward momentum.

A proxy measure of short-interest, the percentage of shares outstanding on loan, is at 9.7%, according to data from

IHS Markit.

While this has more than doubled from March, it is far below levels previously seen for stocks such as

GameStop,

which was above 80% in January.

This isn’t deterring some Reddit users. “Apes who missed on $GME! Listen up, $CLOV is ready to lift off!” wrote one user who goes by u/pvr90 on Tuesday. Ape is a nickname for buyers of

AMC Entertainment Holdings Inc.

shares, which have been among the most actively traded meme stocks in recent weeks.

Unlike shares of AMC and GameStop, which are up over 2500% and 1450% this year respectively, Clover is now up around 35% for the year in a turnaround after declining as much as 57% compared with its Jan. 8 price.

The company is Mr. Garipalli’s third healthcare startup. Besides providing health insurance, it seeks to actively prevent illness by collecting and crunching data on its users.

Investors are pouring into options that profit if Clover Health shares rise. A call option tied to the share price hitting $22 and that expires in 10 days is among the most actively traded options on Tuesday.

This may also be contributing to the massive moves in the stock. Market makers such as banks that sell such options typically hedge their positions by buying the underlying stock. A surge in call options activity could lead banks to snap up more stock, contributing to demand.

Others on Reddit speculated that Clover Health could be added to the Russell 2000, a widely followed small-cap index, though it isn’t clear if this would be enough to justify the rise in its share price.

Index provider FTSE Russell is adjusting the constituents of its indexes June 25. The company said 38 new companies will be added to the Russell 2000, with 21 classified as healthcare. Funds that mimic widely followed indexes will have to buy shares added to the index.

The recent run up in GameStop and other stocks involves investors in opposing camps: traditional Wall Street firms and small investors who are bucking the system. WSJ asked the same series of questions to one of each about the role of WallStreetBets in the trading frenzy. Photo Illustration: Carlos Waters

Write to Anna Hirtenstein at [email protected]

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By rahul