The fate of one of Wall Street’s most polarizing stocks — embattled electric truck maker Nikola, the company accused of being an “intricate fraud built on dozens of lies” and now facing a reported SEC investigation — will be decided almost entirely by long-only investors and mostly by retail traders.

Why it matters: This could be the ultimate test of Wall Street’s current buy-the-dip ethos and the option market mania that has driven equity prices and valuations through the roof despite a withering economy.

  • Can a hot tech stock continue to rise, even after being accused of essentially being the next Theranos?

Background: Nikola went public earlier this year through a reverse merger with a blank-check company and has recorded no meaningful revenue, yet reached a market valuation higher than Ford and provided an 11% stake to GM worth $2 billion.

What’s happening: Short sellers are effectively locked out of Nikola’s shares going forward, says Ihor Dusaniwsky, managing director of Predictive Analytics at S3 Partners, which tracks short sales, or bearish bets that a stock’s price will fall.

What he’s saying: “Short selling can not be a driver of price movement in the near future due to a severe lack of stock loan availability,” Dusaniwsky said in a note to clients.

  • “Because non-insider NKLA holders are predominantly retail based who are not active lenders of stock nor in margin accounts and there are not many institutional or hedge fund holders who actively lend stock, or whose stock is [rehypothecated] and lent out, the overall lendable supply of NKLA stock is very small.”
  • Just 1.3 million of the 106 million shares traded on Monday had short exposure, and it’s likely the ratio will stay that way for some time.

What it means: The lack of short sellers and the high percentage of shares owned by retail traders could push Nikola’s price higher, even in the face of an SEC investigation, as the retail market has shown little worry about fundamentals.

  • This was best evidenced by car rental giant Hertz, which saw its stock rise 95% in three weeks after declaring bankruptcy in late May. (Though it has since fallen by 52% from its May 22 level and is down 92% year to date.)

Watch this space: Those betting against Nikola “are walking a tightrope,” Dusaniwsky says, as fees to borrow the stock for shorting have risen to 25%, or nearly 100 times the average fee for other auto companies popular among short sellers.

  • And fees could rise back to the 600% level seen as recently as July, he warns.

Editor’s note: Article clarifies that Nikola provided GM with an 11% stake worth $2 billion, rather than selling it to the company. The deal is part of a partnership between the two companies.

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