Here’s why the stock of Torchlight Energy Resources soared today

What happened

Actions of Torchlight energy resources (NASDAQ: TRCH) climbed 58% on Monday after the oil and gas driller extended the closing date for its merger with the advanced materials maker Metamaterial.

So what

Torchlight and Metamaterial have agreed to extend the transaction date to June 30. This will give Torchlight enough time to pay its shareholders the special dividend it announced on June 14.

The Torchlight Energy Resources share price has jumped in recent days. Image source: Getty Images.

Torchlight common shareholders who own shares at the close of the June 24 registration date will receive one Series A preferred share for each common share they own. The preferred shares will entitle investors to a portion of the proceeds that the combined company receives from the planned sale of its oil and gas assets.

Torchlight intends to pay the special dividend on June 25.

Now what

Torchlight has caught the attention of marketers on Reddit and other social media platforms. Some of these traders hope to trigger a short contraction by driving up the stock price and forcing short sellers out of their positions. Their goal is to cause short sellers so much pain that they rush to buy back the stocks they have sold short, which could help accelerate the stock price’s sharp rise.

Yet, although short compressions can create sharp upward movements, they also tend to be short-lived. And when a tightening ends, investors who bought late in the rally can often suffer large losses.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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