Short Squeeze

Short Squeeze: A short squeeze occurs when a heavily shorted Stock or Asset experiences a rapid increase in its price, forcing short sellers to buy back Shares to cover their positions, which further drives up the price.

Example 1: In January 2021, GameStop (GME) became the center of a short squeeze. Many hedge funds had shorted the Stock, betting its price would decline. However, Retail Investors began buying Shares en masse, causing the price to soar from around $20 to over $300. As the price rose, short sellers were compelled to buy back Shares to limit their losses, leading to an even higher price surge.

Example 2: In 2008, the Stock of Volkswagen experienced a significant short squeeze. The Stock price skyrocketed when Porsche announced it had increased its stake in the company, which caught short sellers off guard. This led to a dramatic increase in Volkswagen’s Stock price, briefly making it the most valuable company in the world at that time.