Jefferies Hiring, Shanda Stake Lift LendingClub Corp (LC) Stock

Shanda Group has taken a large stake in LendingClub Corp (LC)

May 23, 2016 at 10:38 AM
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Roughly two weeks ago, LendingClub Corp (NYSE:LC) gapped sharply lower after an internal probe uncovered improper business practices. Since then, the U.S. Justice Department has opened an investigation on the lending firm, resulting in a record low of $3.44 on May 17. Today, however, LC stock is fighting back, after the firm late Friday hired Jefferies to help it find investors for loan funding.

Furthermore, the shares are getting a boost from a recent Securities and Exchange Commission (SEC) filing, revealing Shanda Group has taken an 11.7% stake in LendingClub. Shanda described the stock as "an attractive investment opportunity," and may help it evaluate strategic alternatives in the future. At last check, LC has soared 7% to trade at $4.26.

This should be a welcome development among bullish options traders, of which there are many. During the last two weeks across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHL), speculators have bought to open nearly twice as many calls as puts.

However, some of these call buyers may be short sellers in disguise. After all, short interest spiked 22.4% during the last two reporting periods, and now accounts for 23% of LC's float. At the stock's typical trading volume, it would take almost 13 days to cover these bearish bets. In other words, short sellers may have purchased fresh calls to hedge against an unforeseen rally in the shares -- like the one we're seeing today. That said, a capitulation among unhedged shorts could fuel LC's fire.

Analyst upgrades could help the stock, as well. After all, eight of nine brokerage firms tracking LendingClub Corp (NYSE:LC) rate it a "hold" or worse. However, the average 12-month price target remains docked at a relatively high $8.48, nearly doubling current trading levels.

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