Ontrak (OTRK) is on track for a bullish move

Ontrak (OTRK) is on track for a bullish move or short squeeze. The current available float of OTRK is 7,240,000 shares. Of that, 5,901,404 shares are in known positions (institutional, funds, accredited retail). This leaves very few shares that trade openly in the market, which causes a fair bit of low volume volatility in the stock.

A short seller rumored to be Arrowmark Capital Partners has managed to build a short position on OTRK of 2,630,000 shares or 36.3% of the available float. Because the stock is so thinly traded, they have been unable to cover their position.

How did they get so deep in their position? Likely, they took the position hoping that the company would dilute their stock, which they have not done. It would be impossible for them to borrow such a large number of shares to get into this big of a short position, so either: 1) The shorted shares never actually existed (naked short), or 2) They have managed to borrow shares from multiple global institutions to build this position.

Now a squeeze has become inevitable. S3 Partners along with Statista Research have ranked it’s squeeze potential as 100%, which I don’t believe anything should statistically be at 100%, but I digress. The squeeze will place even more pressure on the short seller, who really has no option but to purchase in the open market (not enough shares in the open market) UNLESS they are bailed out financially in order to cover their margin.

The final nail in the coffin came when Credit Suisse purchased 900,000 shares of OTRK on May 31, making the squeeze much more likely as more of the remaining supply is locked up. Currently, as little as 200k shares traded in the open market can move OTRK up or down by 10% in price.

There are really only three ways out of this for the short seller, all of which are unlikely at this point:

  • The market ignores their position and this stock sees no movement.
  • OTRK dilutes the stock directly to the short seller.
  • Credit Suisse agrees to allow the short seller to take custody of their long position.

In the open market, the short seller can simply not cover their position. There simply are not enough shares to mathematically make this happen.”