By Ryan Vlastelica
NEW YORK, July 22 (Reuters) – Shares of USEC Inc, a
uranium company that closed out last week with a market value of
just $30 million, more than doubled on Monday in action that
traders said was due to a combination of thin liquidity and
short-covering.
The stock soared as high as $15.77, up more than 160
percent, its highest level since late January, before paring
gains. It closed up 98 percent to $11.98, the highest close
since March 12.
USEC, a supplier of enriched uranium for commercial nuclear
power plants, said in a statement that it had been contacted by
the New York Stock Exchange about the “unusual market activity”
in its shares, but said its policy is not to comment.
Monday marked a seventh straight session of gains for
Bethesda, Maryland-based USEC, for a total gain of 288 percent.
While there was no specific news about the company, some
analysts cited the weekend elections in Japan, where a
pro-nuclear party posted a strong showing. Shares of Uranium
Resources Inc, another energy company in the nuclear
space, rose 17 percent on Monday.
The move in USEC’s stock was likely amplified by thin
liquidity in a stock that over the last 50 days has averaged
about 113,000 shares a day. About 3.9 million shares exchanged
hands on Monday, the biggest one-day trade in the stock’s
history.
“Liquidity is very thin in a company of this size, and the
combination of that along with what appears to be a short
squeeze is really moving the price,” said Dennis Dick,
proprietary trader at Bright Trading LLC in Las Vegas.
A short squeeze occurs when a stock gains rapidly, causing
traders who had been betting on the stock to fall to cover bets
in order to prevent further losses. About 15 percent of USEC’s
outstanding shares are currently being shorted, according to
data from Markit.
The bid/ask spread on the stock was large, moving as wide as
80 cents at one point. Very liquid stocks, such as Bank of
America Inc, often have a difference between the bid price and
the ask price of a penny.
The spread “means that if someone wants to make a trade in
the thousands or tens of thousands of shares, that will really
move the price,” Dick said.
Shares of USEC on Friday rose 29 percent, a move that the
company also declined to comment on. Friday’s session prompted
the company to issue a similar statement declining to comment on
unusual trading.
The stock had been under pressure since announcing a
1-for-25 reverse share split on June 27 in order to remain
listed on the New York Stock Exchange. That split cut the
company’s outstanding common shares to about 5 million from
about 124 million.
(Editing by Leslie Adler)
