![]() ![]() ![]() No slacking off here: you need to pay attention by the minute in some instances, as a stock can turn that quickly. Once the squeeze has been squoze, the stock price will begin to fall, so timing is absolutely everything if you want to benefit from a short squeeze. It’s the same with short-interest ratios. ![]() Short interest percentages can indicate whether a rally might occur: the higher the short interest percentage, the better the chances. The exciting part is that there’s theoretically no limit to how high a stock can go, which works out extraordinarily well for some investors.īenefiting from a short squeeze is all about timing and a little bit (or a lot) of luck because nobody really knows exactly when one will happen. How can investors benefit from them?Īs we can see from the above two examples, short squeezes are volatile and not for the faint-hearted. It was kaput for the short squeeze and some GameStop investors lost thousands of dollars. Some institutional investors had to close out their positions, but it all fell apart when the retail investing platform Robinhood suspended trading on the stock after getting dangerously close to its collateral limit. One user noticed traders shorting GameStop, which sparked a vast influx of retail investors buying the stock and even Elon Musk tweeting about the squeeze, driving GME shares from $20 to a peak of $480. Porsche CEO Wendelin Wiedeking was charged with market manipulation after the drama, but eventually the charges were dropped in 2016.Īnd, of course, who can forget the infamous Gamestop rally? The subreddit WallStreetBets, home of meme stocks and diamond hands, was the center of the controversy, ending with a congressional hearing. At one point Volkswagen was the most valuable company in the world, with shares at over €1000 and short losses in the tens of billions. One of the most famous examples is the 2008 Volkswagen and Porsche saga, where Porsche announced it had bought almost all of struggling Volkswagen’s circulating stock.Īround 12.5% of VW stock was on loan to short sellers when this happened, so they closed out their positions as quickly as possible - driving the share price through the roof. The best way to show what short squeezes are is to go through some of the high-profile examples because some short squeezes are the stuff of legend. Sounds simple, right? But investing in a short squeeze is far from it. This sudden, massive increase in demand can send the price soaring in a short space of time. Short sellers then either need to close out their positions or buy up more stock so they don’t lose money, creating a short squeeze. ![]() A sudden change in fortunes for a company could also drive up share prices. High short interest is where the amount of shares gets bought up, making it tricky for short sellers to cover their positions. When the stock price does fall, the short seller makes money.Ī short squeeze is when those bets don’t pay off. But sometimes the writing is on the wall for investors that a company isn’t doing so well, so they bet that the stock price will fall, or ‘short’ it. Companies and their stocks rise and fall for a number of reasons: earnings reports, market conditions and new product releases, to name a few. ![]()
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