The idea and the mechanism
When short interest is high and the stock is expensive to borrow, the shorts are under standing pressure. A small upward catalyst can force them to cover, and their covering is itself buying — a self- feeding move. The names where this bites hardest are small and hard- to-borrow, which is exactly the territory big funds can't operate in.
The only long-convexity idea in the lab — it makes money in sharp up-moves, the opposite payoff shape to the short-premium book, so it hedges the book's worst environment. Critical caveat: squeezes are rare and violent; most flagged names never fire.
The frozen gate
Will be considered to have passed Stage 1 if:
- Mean per-trade EV ≥ +5.0% of premium paid (high bar because hit rate is low — payoff must justify the bleed) [suggested, to freeze]
- Hit rate ≥ 20% (lottery-ticket shape; most lose, the wins must be enormous) [suggested, to freeze]
- Sample size ≥ 400 triggered events [suggested, to freeze]
- Effect present in both sample halves [suggested, to freeze]
- Trigger-validity check: results conditional on "fresh upward trigger" must beat unconditional buys on the same SI+borrow filter — confirms the technical trigger is doing real work [suggested, to freeze]
- Concentration check: no single year contributes > 40% of total P/L (catches the "one GameStop / AMC year carries everything" failure mode) [suggested, to freeze]
What we expect to find
The mechanism is real and the tail-events are dramatic, but the hit-rate-vs-premium-bleed math is brutal. Probability of clearing the gate is moderate-low (~30-40%). Most likely failure modes: (a) concentration check fires because 2020-21 GME/AMC era carries disproportionate P/L and the rest of the sample is bleed; (b) trigger-validity check shows no incremental edge — the SI+borrow filter alone may be doing all the work, with the trigger adding nothing.
Methodology appendix — gates, exact parameters, look-ahead audit — is visible to subscribers. See the plans →