Why Redbox Entertainment Stock Is Roaring Higher Again Today

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What happened

Shares of Redbox Entertainment (RDBX 29.77%) were roaring 25% higher in morning trading Monday as the meme stock continues to run far ahead of the valuation that it’s been assigned by a takeover deal certain to go through.

This morning, Redbox picked up where it left off on Friday after a new short-interest report showed short-sellers piling into the stock with the short-interest ratio tripling from the previous period. The operator of movie-rental kiosks gained 39% by the market close last week.

Image source: Redbox.

So what

Redbox is being acquired by Chicken Soup for the Soul Entertainment (CSSE -2.40%) in a deal that values the company at $375 million, including $50 million worth of Chicken Soup for the Soul stock and $325 million in Redbox debt that’s being assumed. At current valuations, Redbox is worth $430 million.

Because of the heightened short-selling surrounding the shares, traders are hoping to engender a short squeeze, which could in fact be occurring if the price movement is any indication. The stock is up almost 80% in the past two days and is up 920% from the lows it traded at earlier this year.

Now what

If and when the Chicken Soup merger goes through, Redbox investors will receive 0.087 shares of Chicken Soup for the Soul for every Redbox share they own. With the acquirer’s stock trading under $9 a share, it makes playing the short-squeeze trade a much more enticing gamble.

But look for the stock price to crash just as the transaction is consummated, if not beforehand, as those who are playing the arbitrage quickly cash out.