As Latest Meme stock drama unfolds theres one thing different this time around - Market watch
"Market makers appear well positioned to provide liquidity in the latest rallies of Kohl's and Rocket, as reflected by implied lending rates. After the initial hype, borrowing costs have snapped back to moderate levels around 10% annualized," DeSimone wrote in emailed commentary shared with MarketWatch.
"This stands in stark contrast to GameStop's January 2021 run, when lending costs soared to nearly 80% annualized, making the stock virtually impossible to borrow," he added.
What does that mean, exactly?
"Overall, this suggests that the potential for an extreme short squeeze is likely limited," DeSimone said.
The implied lending rate reflects the cost of shorting, derived from options prices and expressed on an annualized basis. For example, a 10% implied lending rate means that it would cost 10% of the stock's value a year to maintain a short position, DeSimone noted.
Implied lending rates can also indicate the potential strength of a short squeeze, as high borrowing costs make it prohibitively expensive for an investor who has sold a stock short to maintain the position.
One reason this has changed between 2021 and now, according to DeSimone, is that market makers have adjusted their pricing, removing some of the barriers to short selling that investors experienced last time around.
However, this hasn't done much to dissuade investors - particularly those congregating on platforms like Reddit's (RDDT) WallStreetBets - from betting on stocks that have high short interest.
As Bespoke Investment Group pointed out in a report shared with MarketWatch on Thursday, heavily shorted shares have dramatically outperformed the broader market since the S&P 500 SPX hit its 52-week closing low on April 8 .
- Joseph Adinolfi
Market Data 
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