American Airlines surges after better-than-expected results, squeezing short sellers

An American Airlines Airbus A321-200 plane takes off from Los Angeles International airport (LAX) in Los Angeles, California.

Mike Blake | Reuters

American Airlines shares jumped Thursday after posting a smaller-than-expected loss and higher sales than analysts projected.

Shares were trading up more than 7% in late-morning trading, after gaining as much as 31% earlier in the session. Analysts were quick to say the big move early Thursday was not based on the state of American’s business. The carrier and its competitors are struggling to gain their footing in the coronavirus pandemic and American booked a record net annual loss of $8.9 billion.

The carrier is the most-shorted U.S. airline, according to FactSet, and the big move comes after explosive rallies in other heavily shorted stocks GameStop and AMC Entertainment Holdings.

Those stocks have shown up in “Wallstreetbets” Reddit chat room where a wave of at-home traders bought up heavily shorted stocks, sending shares soaring and squeezing out short-selling hedge funds. Short positions are bets that stocks will fall, where an investor or trader sells a share with an agreement to buy them later when they think the price will drop and they can pocket the profits.

The percentage of short interest in American Airlines shares far outpaces that of its competitors. Short interest in American was 25% of the company’s float, according to FactSet, compared with 14% of Spirit Airlines‘ and about 5% of United Airlines‘.

“We do not believe the move is fundamentally driven as American’s outlook is similar to others we have heard during this earnings cycle,” said Cowen & Co. airline analyst Helane Becker. “We believe the move is due to the de-risking going on in the market and American remains one of the most consensus short airlines in our coverage universe.”

She said American could use this rally for a stock offering. American’s gains in premarket trading had topped 80% at one point during in premarket trading.

-CNBC’s Yun Li contributed to this report.

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