What happened

Shares of online gaming company Skillz (SKLZ -1.17%) were up as much as 8% on Monday. As of 2:10 p.m. EDT, the stock was up 6.2% for the day. There was no news from the company or analyst upgrades for the stock, so it's somewhat puzzling why Skillz stock was up so much. However, the company was just added to the Russell 3000 Index and has a high short interest, which could have spurred Wall Street Bets traders on Reddit to pile into the stock. 

A serious young man looking at his phone with his other hand on the side of his face.

Image source: Getty Images.

So what

Since going public through a special purpose acquisition company (SPAC) late last year, Skillz stock has traded with heavy volatility. The stock was up as much as 90% from its first trading day in February and down as much as 45% in April. At $21.70 a share, the stock has now recovered much of these losses and is down around 4.5% since December of 2020.

With a high short interest of 15.8% (which means around 15.8% of the stock is estimated to be sold short), Skillz may be subject to further volatility if Wall Street Bets traders execute a short squeeze as they have with Game Stop (GME -2.06%) and Clover Health (CLOV -4.35%). In fact, when Skillz announced a small acquisition of advertising technology company Aarki a few weeks back, the stock soared as much as 30% on the news.

Now what

If you're a long-term investor in Skillz, you should be prepared for further volatility ahead. This does not mean Skillz's business is improving or declining by 5% or more on a daily basis. Rather, the market dynamics make the stock a bit of a hot potato. The stock trades at an expensive trailing price-to-sales (P/S) ratio of 27.7 right now. Combine that with high short interest and demand from Reddit investors, and it looks like Skillz stock is set up to have high volatility for the foreseeable future.