• Research

Nov 16, 2016

S3 BLACKLIGHT: Dryships Is NOT a Short Squeeze

Dryships Inc.’s (DRYS US) has been halted yet again after closing at $73 per share on Tuesday, but was trading as high as $119.97 in today’s premarket activity. While a 1,501% stock price increase from its November 8th close of $4.56 was impressive, a 2,531% increase in just over a week to today’s premarket high is astounding. Social media and financial news outlets have been touting this move as one of the most impressive short squeezes in recent memory.

Dryships reported its 3rd quarter results on November 9th, a loss of $5.2 million or $7.70/share. In order to stay afloat, Dryships is negotiating with its lenders to restructure its bank facilities and suspend payments on some of its loans temporarily to preserve any remaining cash liquidity.

With Dryships having sold off most of its fleet in the last three quarters, defaulting and suspending payments on several of its loans, and the general drybulk shipping business in turmoil, it would be a quite a reach to call this stock a possible turnaround or value play. In fact, Dryships has been forced to execute three reverse stock splits this year in order to keep its stock price high enough to remain listed and not be relegated to the Pink Sheets. An investor that owned 1,500 shares of Dryships in January of this year would only own 1 share today.

Dryships’ recent price move is spectacular, but it is not a short squeeze; instead, day traders are bidding up the price of DRYS quite aggressively in hopes of short-term profits. 

The first time Dryships trading was halted was on November 10th due to its stock price gaining nearly 200% on 5.7 million shares of trading volume, which is over 40 times its monthly trading average. Dryships continued its trend of being halted “limit up” on November 11th, 14th and 15th with trading volumes of 5.2, 10.0 and 10.2 million shares per day respectively. With Dryships’ short interest at $12 million, or 130,700 shares, on November 15th, short covering was not the driving force behind Dryships’ recent stock price spike. The 130,700 shares of short interest make up less than half a percent of the 31.1 million shares traded in the last four days. Even if all the open shorts covered their positions it would not have moved Dryships’ price significantly.

Although there has been no technical short squeeze in Dryships, i.e., where short covering is one of the main factors behind driving a stock’s price higher, shorts did not get away unscathed. Besides enduring a 1,500% to 2,500% unrealized loss, their borrowing costs are increasing at a breakneck pace as well. Because of the minimal amount of stock available to borrow in the first place, Dryships’ borrow rates have been expensive for most of the year. Borrow rates were at a 15% fee on November 1st and nearly doubled, to 26% fee, by the 14th. Rates then followed Dryships’ stock price and rose to 50% fee on the 15th and 150% fee today, with a few small pieces going as high as 420% on an annualized basis. There are only scraps of shares available to borrow now, and with brokers borrowing every share they can get their hands on, there may be an additional 50,000 shares shorted today if trading ultimately resumes.

Dryships’ short interest will be increasing slightly over the next few days so there is no short squeeze. Dryships’ financial condition has been weakening, with little hope of a full recovery, so this is not a value play. So, with only 1 million shares of float and over 31 times its float changing hands in less than a week, Dryships’ recent trading has been a multi-day spiraling and intra-day bull momentum play.

Dryships has turned into a game of musical chairs, except for the last traders who will be sitting and holding onto their shares as the bubble eventually bursts and they lose. At some point, buy-side demand will wane and the risk-reward of jumping back into the trade will no longer be attractive. The traders holding Dryship’s 1 million shares of float will see the stock price slip back to its “pre-tulip” craze levels of $5 per share. As with the shipping business, timing is everything.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


To arrange an assessment of  S3 BLACKLIGHT , please click CONTACT or visit  BLT<GO>  on the Bloomberg terminal.

To arrange an assessment of the  S3 BLACKLIGHT APP , please type  APPS BLACK<GO> on the Bloomberg terminal.

Our Awards