What happened

Shares of Redbox Entertainment (RDBX) dropped on Friday, down 14% as of 3:30 p.m. ET. The stock has been whipped up and down over the past few months as traders attempt to predict the future of the company and its stock.

So what

Redbox went public in October at $10 per share via a special purpose acquisition company (SPAC). By February, shares had already plummeted nearly 90%. After a couple more months in the doldrums, Chicken Soup for the Soul Entertainment (CSSE -4.31%) emerged as an acquirer on May 11. That appeared to be the end of the story. But it wasn't.

The merger agreement states that every Redbox share will be exchanged for 0.087 shares of Chicken Soup for the Soul. As of this writing, Chicken Soup for the Soul trades at $9.50, implying Redbox stock is only worth $0.83 per share, compared to the $4.43 per share it trades at right now. Therefore, isn't it obvious to short Redbox, expecting it to go down?

Not so fast. Traders have been buying shares to try to induce a short squeeze. Those betting Redbox stock will go down eventually have to buy shares to cover their positions. And traders are buying up shares, expecting to make the short-sellers pay up when they try to cover.

While this has been happening and will likely keep happening, today it seems like some people playing this game decided to cash out and take some gains off the table.

Now what

I doubt this story has entered its final chapter. The market capitalization of Redbox is now higher than that of Chicken Soup for the Soul, even though the latter is acquiring the former. This would suggest the two parties could come back to the table and renegotiate.

That said, as of July 15, filings with the Securities and Exchange Commission (SEC) confirm that the original terms of the agreement are still intact. Therefore, while the possibility exists for upside with Redbox, I personally wouldn't buy shares until there's clarity and the possibility of $0.83 per share -- roughly 80% downside -- is completely off the table.