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Short Squeeze ETF Raises Eyebrows

June 6, 2014 12:39 PM EDT

Traders are chatting about a recent SEC filing for an upcoming short squeeze ETF - to be named Short Squeeze Fund (Ticker Symbol: SQZZ).

The ETF comes from ETFis with the objectives to outperform the Russell 2000 Index and to earn current income. The fund will seek to achieve its investment objectives by investing in U.S. equities the Sub-Adviser believes may be subject to a “short squeeze” and by lending portfolio securities that the Sub-Adviser believes may be subject to a short squeeze.

The Sub-Adviser highlights a "proprietary process to identify potential short squeeze opportunities." The secondary investment objective is to lend out portfolio securities it most likely thinks could be subject to a short squeeze to short sellers and other market participants for a premium recognized as income.

While the filing did not discuss individual names, traders have already pointed to potential additions to the fund. Some of those names include: Zillow (NYSE: Z), Tesla (NASDAQ: TSLA), Keurig Green Mountain, Inc. (NASDAQ: GMCR), Intuitive Surgical, Inc. (NASDAQ: ISRG), NQ Mobile Inc. (NYSE: NQ), Herbalife Ltd. (NYSE: HLF), USANA (NASDAQ: USNA), Nu Skin (NYSE: NUS), Vera Bradley (NYSE: VRA), Uni-Pixel, Inc. (NASDAQ: UNXL), SodaStream (NASDAQ: SODA), and RadioShack (NYSE: RSH), among others.

As far as the potential success of the ETF, that is up for debate. On one hand, stocks have high short interest for a reason - they are usually lousy, overpriced, mismanaged companies. On the other hand, with a dedicated ETF buyer loading up on shares of heavily shorted-stock, with enough fire-power the fund can help perpetuate a short squeeze. You can be sure that if the fund successfully finds a 'short squeeze' lawsuits will be flying. Lawyers will try to say the fund helped create a squeeze - which could be construed as manipulation.



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