Reddit’s latest darling: Chamath Palihapitiya’s Clover Health

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The Reddit crowd’s latest stock darling is a little-known health care company that became a target of short sellers earlier this year after a respected research firm called it a “broken business.” 

Shares of Clover Health surged as much as 109 percent on Tuesday before retreating to a gain of closer to 50 percent as chatter about it grew to a deafening roar on Reddit’s popular Reddit’s WallStreetBets forum.

The company, which provides consumers access to public and private health plans, went public in January with the help of “SPAC King” Chamath Palihapitiya.

And while deals to take companies public via special purpose acquisition companies have lost some of their luster amid increased regulatory scrutiny, Palihapitiya’s Clover appears to be getting a second wind on renewed efforts by day traders to squeeze Wall Street short sellers.

Venture capitalist Chamath Palihapitiya speaks on a stage in 2018
Venture capitalist and ‘SPAC King’ Chamath Palihapitiya speaks during an event in 2018.
Bloomberg via Getty Images

Some 43.5 percent of Clover’s float shares have been sold short, CNBC said Tuesday, citing data from S3 Partners. The push kicked off in February after respected research firm Hindenburg Research issued a scathing report suggesting the company was facing a probe from the Department of Justice over possible corruption charges.

Hindenburg, known for its takedown of electric-vehicle maker Nikola last year, also raised questions about whether Palihapitiya misled investors about the business and failed to disclose the investigation.

Clover has disputed Hindenberg’s finding, but investors still sent the stock down from $13 at the beginning of February to below $7 last month. On Tuesday, the stock closed up 85 percent percent to $20.81 a share.

WallStreetBets Reddit app
The WallStreetBets Reddit app has been linked to other dramatic changes in stock prices, including shares of AMC Entertainment and GameStop.
SOPA Images/LightRocket via Gett

Clover’s surge is just the latest eye-popping increase among the so-called “meme stocks” that pass muster with Reddit’s WallStreetBets crowd.

Last week, indebted movie theater chain AMC Entertainment’s shares more than doubled as retail traders buoyed up the price. Shares of AMC are up over 2,500 percent this year. Shares of Reddit rally favorite GameStop is up 1,450 percent.

These and other “meme stock” rallies have gotten so heated the Securities and Exchange Commission recently said it is looking into signs of market manipulation due to concerns about “volatility in certain stocks.”

That volatility has proved challenging for Wall Street. Several financial analysts have stopped covering Reddit favorites like GameStop in recent weeks.

The GameStop rally in January, meanwhile, resulted in major losses by hedge funds shorting the video game retailer, as well as hearings on Capital Hill after no-fee trading app Robinhood temporarily barred users from buying it and other “meme stocks.”

According to Reuters, options trading tied to Clover have drawn a surge of bullish activity in recent days with trading volume surging to 587,000 contracts on Monday, compared with an average daily volume of under 50,000 contracts for the month of May.

Call options speculating on the stock climbing all the way to $30 were among some of the most heavily traded contracts in recent days, the publication said, citing Trade Alert data.

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