What Is a Short Squeeze?

As mentioned above, short sellers believe that there will be a decrease in a stock or securities price. If the short sellers prediction is correct, they will profit by pocketing the difference between the price they sold the stock for and the price they bought it back for. During this time, day trading and individual investing had increased, and the news of this potential bull case had circulated.

Other Types of Squeezes

As positive news, market sentiment shifts, or other catalysts emerge, demand for the stock increases, causing its price to rise. Thorough due diligence and research are fundamental to successful participation in short squeezes. It is essential to gather accurate and reliable information about the target stock, its fundamentals, industry trends, and potential catalysts. Conducting proper research helps assess the likelihood of a short squeeze, identify potential risks, and make informed trading decisions. Participating in a short squeeze requires careful analysis, tactical planning, and swift execution. Traders and investors who aim to capitalize on the potential gains from a short squeeze must employ effective strategies to navigate such volatile market conditions.

What is your current financial priority?

When identifying stocks at risk of a short squeeze, two useful measures are short interest and the short interest ratio. Short sellers borrow shares of an asset that they believe will drop in price in order to buy them after they fall. If they’re right, they return the shares and pocket the difference between the price when they initiated the short and the price when they buy the shares back to close out the short position. If they’re wrong, they’re forced to buy at a higher price and pay the difference between the price they set and its sale price. Super Micro has yet to file its F2024 annual report but is on track to do so soon.

Short squeezes only happen when a lot of traders have shorted the same stock. A short squeeze is a quick path to getting a lot of juice out of a stock. To capitalize on that, they borrow shares from a broker, then sell them at the current price. When the stock price falls, axes broker they buy the shares at the lower price, return them to the broker and pocket the difference.

1. GameStop, a retail gaming company, was affected by a decrease in mall foot traffic, the pandemic, and competition.
2. Key growth areas, including the Sephora partnership and categories like home decor and gifting, will be critical drivers.
3. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on…

How to Spot a Short Squeeze — What Every Short Seller Should Know

But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Daily moving average charts show where a stock has traded for a set how to become a successful forex trader time period. Looking at a 50-day (or longer) moving average chart will show whether there are peaks in a stock’s price. To view moving average charts, check out one of the many charting software programs available.

Short Squeeze

The resurgence of meme stocks in 2024 once again put pressure on short sellers, who had re-established bets against GME and other meme companies. According to analytics firm S3 Partners, GameStop short sellers lost over $1.3 billion in the initial May 2024 squeeze, with more losses on the horizon if the stock continues to pump. Short sellers zero in on a stock that they think is overvalued by the market. For example, Tesla Inc. (TSLA) captured the enthusiasm of many investors with its innovative approach to producing and marketing electric vehicles.

As the stock price skyrocketed, short sellers were forced to cover their positions, leading to significant losses for some hedge funds. The short squeeze also highlighted the potential power of retail investors when organized and united, challenging the dominance of institutional investors in the market. The result was not only retail investors continued investments in GameStop stock and call options, but also a major increase in GameStop stock price in a matter of days. On January 27, 2021, GameStop’s share How to buy cred price rose to $347.21, with a brief peak of $483 per share. This squeezed out short sellers, such as major hedge funds, causing them to lose billions of dollars.

The higher the ratio, the higher the likelihood short sellers will help drive the price up. A short interest ratio of five or better is a good indicator that short sellers might panic, and this may be a good time to try to trade a potential short squeeze. The first predictor to look at is the short interest percentage—the number of shorted shares divided by the number of shares outstanding. For instance, if there are 20,000 shares of Company A sold by short sellers and 200,000 shares of stock outstanding, the short interest percentage is 10%. The higher this percentage is, the more short sellers there will be competing against each other to buy the stock back if its price starts to rise.