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Real-world examples of a short squeeze in action

These conditions make it easier for price spikes to occur when short sellers need to cover their positions. If the short coinbase cryptocurrency traders continue to face frozen funds for weeks sellers prediction is wrong, and the stocks value increases, it forces them to buy the stock back at a higher price from which it was sold and pay for the difference. In simpler terms, just remember that short selling is a way for short sellers to make a quick profit by borrowing a stock or security to sell and then buying it back to possibly profit and return the stock. If short sellers are mistaken and the business is not overvalued or impaired, going long could be quite profitable.

You assume full responsibility for any trading decisions you make based upon the market data provided, and Public is not liable for any loss caused directly or indirectly by your use of such information. Market data is provided solely for informational and/or educational purposes only. It is not intended as a recommendation and does not represent a solicitation or an offer to buy or sell any particular security. Ultimately, investors or buyers who have long positions in stocks can benefit from the effects of a short squeeze and an instant rise in a stock’s price. Another more recent example of a short squeeze was the January 2021 GameStop short squeeze. GameStop, a retail gaming company, was affected by a decrease in mall foot traffic, the pandemic, and competition.

• This pushed prices higher still, which meant that losses for short sellers were increased exponentially.
• As the stock price begins to rise, short sellers may feel compelled to cover their positions to minimize losses, further exacerbating the price increase.
• This rush to buy drives the stock price even higher, leading to a self-reinforcing cycle that can result in significant losses for short sellers and substantial gains for those on the other side of the trade.
• A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.

Short interest ratio

Even in a best-case scenario, a short squeeze is a quick occurrence — not a long-term strategy. Buying into a company in the hope of lassoing a rocketing price is speculative at best. Holding company Porsche SE owned a big chunk of the shares, and the German government also owned a large stake, meaning that relatively few shares were actually traded in the public market. There was ample speculation that Porsche would buy the rest of Volkswagen. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site.

Potential Gains for Long Investors

A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. By recognizing the warning signs and mechanisms of a short squeeze, wealth managers can better position their clients’ portfolios to navigate these events. After the initial meme stock craze, GameStop shares drifted steadily lower, settling at just over $10 a share by the Spring of 2024. However, in mid-May of that year, the stock suddenly skyrocketed once again after Keith Gill, also known as “Roaring Kitty,” resurfaced on social media after a three-year hiatus. Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority.

Spotting short squeeze stocks

Chewy cofounder Ryan Cohen and Scion Asset Management’s Michael Burry both took long positions on GME, and Cohen became the chairman of GME’s committee to shift to e-commerce. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work how to buy thor has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others.

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To trade a short squeeze, you’d need to open a position that stands to profit rpx neo coin is coinbase the best wallet from rising share prices. This means you’d open a position to buy (go long) with CFDs once you’ve identified a short squeeze. A notable short squeeze happened in October 2008, when the Volkswagen (VOWG) share price quintupled from €210 to over €1000 in two days. It caught the market completely by surprise and, for a brief period, Volkswagen was the most valuable company in the world.

A short squeeze happens when many investors bet that a stock price will go down, but the stock price rises instead. By understanding the dynamics of short squeezes and adopting these strategies, wealth managers can better manage their clients’ portfolios, maximize gains, and minimize risks during these volatile market events. Wealth managers should also proactively identify stocks that are susceptible to short squeezes. This involves analyzing factors such as high short interest, upcoming news events, and technical indicators that could potentially trigger a short squeeze. This can be due to margin calls, in which brokers require additional capital to maintain the short position, or simply due to risk management decisions by the short sellers. As positive news, market sentiment shifts, or other catalysts emerge, demand for the stock increases, causing its price to rise.