Options traders and short sellers are pulling in opposite directions on Red Cat Holdings. The lending market is almost tapped out. Calls are being bought at the fastest clip in two weeks. Something has to give before July earnings.
Since the June 18 earnings miss, short sellers have kept building. Short interest now stands at 28.3% of the free float — up 16% in a single week and up 17.2% over the past month. That is roughly 33.8 million shares borrowed against the float.
The lending pool has almost no room left. Availability has collapsed to 7.95% — meaning for every 13 shares already out on loan, only one remains available to borrow. A week ago availability was around 30%. The week before the earnings print it was above 34%. The drop has been steep and fast.
This is now the tightest the borrow market has been since late May, when availability briefly grazed zero. Bears who want to add from here will face a shrinking pool and rising friction. Cost to borrow has also moved, rising 22% over the past week to 1.26%.
At the same time, options flow has swung sharply bullish. The put-call ratio dropped to 0.40 on June 29 — the lowest reading in two weeks and 2.7 standard deviations below its 20-day mean of 0.47. The 52-week low on the PCR is 0.23, so this is not an extreme in absolute terms, but the pace of the move is notable.
Calls are being accumulated ahead of the next earnings event, currently scheduled for July 27. The stock fell 5.1% on the day of the June 18 print and was down 20.4% over the five days that followed. Despite that, buyers are positioning for a different outcome next time.
Analysts back the bull case. Five firms carry Buy ratings. Roth Capital initiated at Buy with a $25 target on June 1. HC Wainwright initiated at Buy with a $20 target on May 27. The consensus mean target is $22 — against a last close of $9.28. That is a large gap, and it is keeping call buyers engaged even as shorts pile on.
Two opposing forces are now compressed into the same ticker. Bears hold a near-record short position with almost nowhere left to borrow. Bulls are buying calls aggressively with earnings four weeks out. The ORTEX short score sits at 69.5, placing RCAT in roughly the 3rd percentile of its universe on short score rank — deep in bearish territory by that measure.
One director, Paul Funk, sold $1.9 million worth of shares on June 11 at $11.50. The stock has since fallen to $9.28. That insider activity has not deterred the options buyers.
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