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Why Virgin Galactic Stock Jumped 7% -- Then Collapsed

By Rich Smith – Oct 20, 2020 at 2:17PM

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What do you do when a short seller says "buy"?

What happened

Shares of Virgin Galactic (SPCE -3.57%) flew higher today, rising 6.7% through 12:15 p.m. EDT before turning tail and running the other way. Barely an hour later, as of 1:25 p.m., the stock's gains have been cut back below 2%.

Why? As just reported, there's an investment conference going on in New York City today, sponsored by Grant's Interest Rate Observer. And at that conference, noted short seller Jim Chanos of Kynikos Associates was apparently quoted saying that he would "go long" any publicly traded space company.

Analyst supporting a rising red stock arrow against a green background.

Image source: Getty Images.

So what

It probably doesn't need to be pointed out, but just to be safe, let's mention that Virgin Galactic is one such publicly traded space company. Indeed, when Sir Richard Branson first announced his plans to take the company public, he said his primary reason was to give individual investors a chance to "dabble a little bit in a spaceship company, own a little bit of a spaceship company."

And if even a well-known short seller like Jim Chanos is now encouraging investors to go long space stocks, then that might seem to give added weight to the attractiveness of a space stock like Virgin Galactic. 

Now what

But is Chanos telling investors to buy Virgin Galactic? Maybe...but also, maybe not. In a tweet that emerged just minutes ago, CNBC Halftime Report host Scott Wapner popped the Virgin Galactic bubble by warning that Chanos was in fact just joking when he told people to buy space stocks. In fact, Chanos doesn't think they're worth buying at all. 

And now, a lot of folks who (thought they) were buying Virgin Galactic stock on Chanos's say-so are counting up their losses instead. 

Ha. Ha. Very funny, Mr. Chanos.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

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