Shares of consumer-reviews website Yelp Inc. recorded their biggest one-day advance — nearly 23 percent — on Wednesday, the day insiders were free to sell their holdings, surprising investors. Traders said a short squeeze drove the buying.
The stock rose $4.11 to end at $22.37, with more than 8.6 million shares traded. Shares rose as high as $22.89, and the rally bumped the stock back above its debut price of $22.01 a share.
Part of the stock's rise may be related to the relatively high percentage of shares being borrowed for shorting purposes. About 97 percent of the shares available for borrowing for short bets were borrowed. This only amounts to about 4 percent of the total shares outstanding, according to Data Explorers, a Markit company.
"I haven't seen a good old-fashioned tech short-squeeze in a long time, but this has all the behavior of that," said Mike Shea, managing partner and trader at Direct Access Partners LLC in New York.
About 53 million shares were eligible for sale at the end of the lockup period. Similar ends to restrictions on selling by insiders and underwriters have pressured other technology companies. Facebook Inc. was hit hard after its initial lockup period ended two weeks ago.
"People felt it would be a lock — pun intended — that you'd see the stock get hit when the lockup ended, and that clearly didn't happen," Shea said. "So now everyone is running for cover."
With the stock shooting higher, shorts may have been forced to cover their bets to avoid the squeeze that costs them more money, and apparently added to a sharp upward movement in a stock's price.
Short-sellers borrow shares and sell them, hoping to buy them back at a lower price and pocket the difference. If the price goes up sharply, they often are forced to "cover their shorts" by repurchasing the stock at higher prices, adding fuel to the stock's advance.
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