An American Airlines Airbus A321-200 airliner takes off from Los Angeles International airport (LAX) in Los Angeles, California.
Mike Blake | Reuters
American Airlines allocates jumped by more than 30% on Thursday despite posting a record annual net loss of $8.9 billion, a traffic frenzy fueled by mentions in a Reddit chat room.
The carrier is the most-shorted U.S. airline, according to FactSet, and the big move afflicted with after explosive rallies in other heavily shorted stocks GameStop and AMC Entertainment Holdings.
The rally cooled by recently morning, with shares up 4%, after stock trading platform Robinhood said it was restricting trading in American Airlines to not those closing out of positions, adding the carrier to a list of other stocks in which it limited trading after their slice prices shot up in recent days
Airline analysts were quick to say the big move early Thursday was not based on the state of affairs of American’s business. The airline and its competitors are struggling to gain their footing in the coronavirus pandemic, with a recovery calm elusive.
GameStop, AMC and others have shown up in the “WallStreetBets” Reddit chat room where a wave of at-home purchasers bought up heavily shorted stocks, sending shares soaring and squeezing out short selling hedge funds. Limited selling is a strategy in which investors borrow shares of a stock at a certain price in hopes that the price purpose fall below that level when it’s time to pay for the borrowed shares.
The percentage of short interest in American Airlines portions far outpaces that of its competitors. Short interest in American was 25% of the company’s float, according to FactSet as of Thursday morning, rivaled with 14% of Spirit Airlines’ and about 5% of United Airlines’.
“We do not believe the move is fundamentally driven as American’s position is similar to others we have heard during this earnings cycle,” said Cowen and Co. airline analyst Helane Becker. “We take it the move is due to the de-risking going on in the market and American remains one of the most consensus short airlines in our coverage universe.”
She suggested American could use this rally for a stock offering. The airline’s gains in premarket trading had topped 80% at one place.
— CNBC’s Yun Li and Maggie Fitzgerald contributed to this report.