Clover Health jumps 50% as the Reddit trading mania spreads to more stocks

Passionate day traders glued to their Reddit message boards have found some new targets — Clover Health and Wendy's — pushing shares up double digits on Tuesday.

Shares of Clover Health, a Medicare insurance start-up that went public via Chamath Palihapitiya's SPAC, jumped 46% on Tuesday after surging 32% in the previous session. Wendy's stock climbed more than 15% on no apparent news about the fast food company.

Chatter about the duo grew on Reddit's WallStreetBets forum, which now has more than 10 million participants. The infamous chatroom has been all over AMC Entertainment in the past week as traders piled into shares and call options of the movie theater chain and drove the stock up more than 110% in June.

A short squeeze could be at play for Clover Health, which has 32.7% of its float shares sold short, according to data from S3 Partners. That compares to about 18% short interest in AMC. When a heavily shorted stock suddenly jumps high, short sellers are forced to buy back shares and close its short position to cut losses.

Retail traders on Reddit are encouraging each other to take advantage of the big short interest in Clover and aim to squeeze out short sellers.

"This looks like the perfect setup for a combined short and gamma squeeze. I see no reason why CLOV couldn't reach the same price point as AMC did last week (>$70). It might even go higher than that," one trending Reddit post said Tuesday.

Earlier this year, Clover shares tumbled after short seller Hindenburg published a scathing report that called the company a "broken business." Clover said in February that it received a notice of investigation from the Securities and Exchange Commission and that it intends to cooperate.

Meanwhile, Wendy's is also getting love from Reddit traders. The restaurant chain in May reported better-than-expected earnings and raised its forecast for the year.

The SEC said Monday it's keeping a close eye on the recent wild trading in certain stocks to determine if there have been "any disruptions of the market, manipulative trading, or other misconduct."

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