Paramount Skydance Stock Plunges After Big Gains. Here’s Why.

Shares in Paramount Skydance skyrocketed on Wednesday, driven higher by a potential short squeeze. (Eric Thayer/Getty Images)

Paramount Skydance stock was tumbling on Thursday, putting it on course to give up some of its eye-popping gains from the previous two sessions.

Shares, trading under the new ticker PSKY, dropped 6.3% to $14.02 in early trading. The S&P 500 was down 0.3%.

Created with Highcharts 9.0.1Paramount Skydance stockSource: FactSet

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It wasn’t immediately clear what was weighing on the stock, but it may just be investors locking in profit after some strong recent gains.

The shares notched their best two-day stretch since Paramount listed via an initial public offering in 1990, through Wednesday.

Paramount and Skydance merged last week to form a new company officially called Paramount, a Skydance Corporation. Paramount Skydance announced a seven-year agreement for media rights to the Ultimate Fighting Championship on Monday, and analysts think more deals could be coming.

That is probably not what caused the stock to surge this week, though. Skydance owns about 70% of the equity in Paramount, so public investors own just 300 million of the roughly 1 billion shares outstanding. Of that number, 89 million were sold short as of July 31, according to FactSet data—meaning PSKY may have experienced a short squeeze, one of the key features of the 2021 GameStop meme-stock craze.

Write to George Glover at george.glover@dowjones.com