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.