Discovery, Inc’s (NASDAQ: DISCA) (NASDAQ: DISCB) series B shares spiked nearly 83% in the regular session Wednesday.
What Happened: The cause of the soaring could be a short squeeze involving arbitrage traders or a so-called “arb squeeze” according to Dennis Dick, head of markets structure at Bright Trading, Bloomberg reported.
The thinly traded Class B shares — nearly 94% controlled by television tycoon John Malone — saw volumes spike by nearly 39,445% in Wednesday’s trading.
The latest move in the shares could be an indicator that arbitrage traders were trading the Class B shares after not being able to borrow against Class A shares, according to Dick, reported Bloomberg.
“Maybe some arbs are short one class and long the other, but then the position gets too big and they’re unable to get out, prompting a squeeze on the one class,” said Dick.
The average volume for Discovery Class B shares is 3,349, but on Wednesday volume touched 1,324,372.
The shares also diverged from the company’s Class A shares which were closed largely unchanged at $43.46 and fell 0.78% in the after-hours session.
The Class B shares on the other hand closed 82.83% higher at $128 and fell 7.84% to $117.97 in after-hours trading.
Why It Matters: Last Friday, Discovery’s Class A shares fell 27.45% after the Bill Hwang-led Archegos Capital Management failed to meet a margin call from an investment bank and that bank began selling off stakes held by the family investment vehicle.
Even though Discovery’s shares bounced back on Tuesday, Bank of America analyst Reif Ehrlich sees difficulties ahead for the company particularly in transitioning from traditional cable TV models to over-the-top models.
The stock has found itself among trending topics on r/WallStreetBets, the Reddit forum best known for the short squeeze in GameStop Corporation (NYSE: GME) stock. Options traders this week also bet on a turnaround in the broadcaster.
Retail investors on Reddit have seen the fallout from Archegos as an opportunity to hit back at Wall Street and are pointing to the alleged hypocrisy of the situation.
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