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

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An American Airlines Airbus A321-200 aircraft takes off at Los Angeles International Airport (LAX) in Los Angeles, California.

Mike Blake | Reuters

American Airlines shares rose more than 14% on Thursday after posting less-than-expected loss and higher sales than analysts forecast.

Analysts were quick to say the move was not based on the state of American business. The carrier and its competitors are struggling to gain a foothold in the coronavirus pandemic. American posted a record annual loss of $ 8.9 billion.

The airline is the worst-shortened U.S. carrier, according to FactSet, and the big move comes after explosive rallies at other sharply shortened stocks, GameStop and AMC Entertainment Holdings.

These stocks have surfaced on Reddit’s Wallstreetbets chat room, where a wave of home traders bought sharply discounted stocks, spiked stocks, and displaced hedge funds short-selling. Short positions are bets that stocks will fall when an investor or trader sells a stock with an agreement to buy it later when they think the price will fall and they can pocket the profits.

Short’s percentage of American Airlines stock far exceeds that of its competitors. Short interest in American was 25% of the company’s free float, according to FactSet, compared to 14% for Spirit Airlines and about 5% for United Airlines.

“We don’t think the move is fundamentally driven as the outlook for Americans is similar to what we’ve heard in this earnings cycle,” said Helane Becker, an analyst for Cowen & Co. airline. “We believe the move was due to risk reduction in the marketplace and American remains one of the most consensual short airlines in our coverage universe.”

She said Americans could take advantage of this rally to offer stocks. Americans’ profits in premarket trading had exceeded 80% at one point during premarket trading.

CNBC’s Yun Li contributed to this report.

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Robert Dunfee