LevelFields Users Get Precise Entry & Exit Prices to Capitalize on Short Squeeze for Nuscale
On March 10th, 2024, LevelFields users were notified that Nuscale, a provider of small, modular nuclear reactors, had fallen into a short squeeze where short sellers were driving up the price as they exited their short positions. Nuscale was heavily shorted, having a 25% short interest (1/4 of its shares). The stock had nearly doubled in price in the previous 10 trading days, following an 80% decline from its $10 IPO price in 2022. At $5.50/share, Nuscale executives were set to report earnings on March 14th.
It looks like Nuscale is rising from short covering - the process of buying back shares to replace the borrowed shares the investors used to short the stock. If short sellers borrowed shares at $10 and give them back at $5, they make $5/share on the short. The short trading volumes have declined 30% in the past few days, and the options contracts are lined up at $5 and $13 strike prices, indicating high expectation for a short squeeze or gamma squeeze in the coming days and weeks as short sellers are forced to buy back shares they borrowed, or buy equity to cover option calls they sold.
It certainly looks like a classic setup where there's room for another $1 move up on the share price to $6.50, so if you're OK with high risk, speculative trades, this could be a fun one to jump into for a quick 20% gain on the stock price (downside risk is 50%). If it slips under $5, sell it.
Alternatively, if you're OK holding the stock long-term, (we are holders of it), this could be a good entry point as it might mark the end of the negative sentiment.
Our approach is to enter at 5.50 and sell at $10 if it happens quickly.
NuScale is a startup, yet to commercialize their product which enables the buildup of nuclear power plants in a step by step way. Traditionally, nuclear power plants take billions in capital and over a decade to create. NuScale cuts down the initial costs and timeline substantially, by offering small reactors that can be linked together and scaled up as capital becomes available. The reactors fit on the back of a flatbed truck, making assembly and transport much easier as well.
The CEO stated in their last earnings call that they had $200M in cash, no debt, and no plans to sell more shares of stock. He also noted they'd be providing guidance for 2024 on the call this week, which includes an update on recent commercialization efforts. They have two major contracts that could begin to realize revenues in a meaningful way soon, which would catalyze the stock. This is likely the reason for the short covering and if the news is great, the stock could shoot up towards its initial IPO price of $10. One of the contracts is to create a nuclear plant to power data centers, putting them into the AI ecosystem as demand for processing spikes.
Our view is this is a multi-year hold with the opportunity for some high returns over the next month due to the short interest. Short term trading on this is high risk, high reward, but if you're OK holding on to shares for a long time if they end up sinking on bad earnings news, it could be a trade worth making.
Subsequent alerts were sent when the stock hit $6.50 and $10 a share to take profits and exit at $10. Nuscale hit $11/share and fell back under $5 the next day, indicating the squeeze was out of juice.
