The Crash in Numbers
On Monday, May 18, 2026, the brutal collapse of Rackspace Technology (RXT) continued. The stock fell from $5.82 (Friday close) to approximately $5.01 — a loss of 14%. This follows Friday's -20.16% crash, which pushed the stock from an intraday high of $7.29 to $5.82.
Combined, this represents a 31% loss from the peak within just two trading days. What began as a spectacular rally — the stock climbed from under $2 in early May to over $7 — ended in a classic squeeze collapse.
The Mechanics of the Short Squeeze
Rackspace experienced an explosive rally in early May. The trigger: A partnership with AMD in the AI cloud space, combined with a short squeeze. The stock had extremely high short interest — as prices began to rise, short sellers were forced to cover their positions, further fueling the rally.
Within days, the stock shot from $1.50 to $7.29 — an increase of over 380%. Trading volume exploded, and momentum traders jumped on the train. On May 7, RXT released earnings, and the AI narrative attracted additional buyers.
What the Fundamentals Say
However, the euphoria ignored the hard facts:
- FY2026 EPS guidance: Between -$0.15 and -$0.20 — the company still expects losses.
- Equity: -$1.2 billion — negative. This means liabilities significantly exceed assets.
- Valuation: At $7.29, the market cap was not justified by cash flows or earnings.
Despite the AMD partnership, Rackspace remains a highly leveraged company with negative margins. The rally was pure speculation — no fundamental investment thesis.
The Options Side
On Friday and Monday, put volumes exploded. Those who bought weekly puts with strike $6.00 or $5.50 on May 14 or 15 could realize triple-digit returns. A $6.00 put, bought for $0.30, was worth over $1.00 on Monday — a return of over 230%.
On the call side, positions were massively closed. Implied volatility (IV) rose to over 120% as panic set in. Market makers had to adjust massive hedges, amplifying downward pressure.
What Traders Are Watching Now
The big question: Has the bottom been reached? Technically, the next support is at $4.50 — the level before the rally. If this mark falls, RXT could slip back to the $3 range.
For options traders, the lesson is clear: Short squeezes without fundamentals always end badly. Those betting on momentum must exit quickly — the last 10% of a rally are the most dangerous.
RXT is a textbook example of speculation without substance. The AI narrative alone is not enough when the company is writing red numbers and is overleveraged with debt.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not an indicator of future results.