Shares of FaZe Holdings (FAZE -1.74%) are skyrocketing on Monday, in what seems to be an attempt by retail investors to create a short squeeze. The company only recently went public and has low trading volume and relatively high short interest, which can be a recipe for a short squeeze. As of 10 a.m. ET today, FaZe stock was up 16% after being up as much as 43% earlier in the session.
FaZe is a digital entertainment company that's popular in the video game space, and it officially went public via a special purpose acquisition company (SPAC) on July 20. However, the merger agreement was announced all the way back in October. And ever since the announcement, short interest has been rising steadily with investors who are betting against FaZe stock. They started short-selling shares of the acquiring company, anticipating the day it would merge into FaZe stock.
According to official data from Nasdaq, less than 200,000 shares of FaZe were sold short prior to the SPAC merger announcement. But there were 1.2 million shares sold short as of June 30. With roughly 73 million fully diluted shares, this represents less than 2% short interest, which isn't particularly high.
However, FaZe stock typically has low trading volume, and that's the difference maker today. Only around 600,000 shares of the under-the-radar stock trade hands on a typical day. By contrast, today's volume was already triple its average less than one hour into the trading day. Therefore, this spike in volume -- presumably to exploit rising short interest in FaZe -- is sending the stock higher.
We don't know if short interest in FaZe stock has gone up or down over the past two weeks. According to the Financial Industry Regulatory Authority, data for the first half of July comes out tomorrow. If short interest has continued to go up, it could further motivate retail investors to jump in and send shares higher.
However, a short squeeze won't be a long-term driver for the stock, and long-term results are what I focus on. Therefore, as the company officially starts its public journey, I'll be watching trends like esports' popularity and digital-ad spend because these things more directly correlate to FaZe's underlying business.