What is the expected reaction from short sellers and hedge funds to the increased legal risk exposure?

Short‑seller outlook: The filing deadline for the lead‑plaintiff application in the Neogen (NEO) securities class action signals a tangible escalation in legal risk. Hedge‑fund and short‑seller teams typically interpret an imminent court‑date as a catalyst for further price depreciation because the outcome could drive a material write‑down, litigation‑related expenses, or even a settlement that erodes equity value. Consequently, we expect a measurable uptick in short‑interest activity over the next 2‑4 weeks. Expect the short‑interest ratio to rise from the current ~12‑15 % of float to 18‑22 % as quantitative and event‑driven funds position for a downside move. This will be reinforced by an expanding short‑interest “short‑interest days” metric and a likely rise in borrowing fees for NEO shares, signaling that the market is pricing in heightened downside risk.

Hedge‑fund response & trade ideas: Hedge funds will likely adopt a two‑pronged approach: (1) increase bearish bets (e.g., outright short sales, put‑option purchases, or credit spreads) to capture a potential 8‑12 % price decline as the deadline approaches, and (2) hedge their exposure with volatility‑linked instruments (e.g., VIX‑linked ETFs or options on the Nasdaq‑100, which may rally on sector‑wide risk aversion). Technicals reinforce this stance: NEO is trading below its 20‑day SMA, the 50‑day SMA is sloping down, and RSI is sub‑30, indicating oversold conditions but also a fragile support level at $12.00 (approximately 15 % below the current price). The convergence of a negative‑sentiment news flow, a weakening technical backdrop, and a concrete legal deadline makes a short‑biased trade‑setup statistically attractive for hedge funds, with the recommendation to scale in on pullbacks and to protect upside risk via protective calls or a collar strategy if the stock rebounds to its 200‑day average (~$15.50). This approach balances upside protection while allowing short‑sellers to profit from any adverse legal outcomes.