If you don’t already have an active brokerage account, consider a few of our top choices below. Technical traders monitor certain indicators that may reveal that a stock is ripe for a short squeeze to occur if substantial buying pressure begins to enter the market. In October 2008, amid the broader financial crisis that caused most every stock to trade down, Volkswagen’s stock continued to trade higher. Those who didn’t think a deal with Porsche would happen, or were buying Volkswagen stock to hedge another investment, shorted the automaker’s stock, assuming that its price would fall eventually. The GameStop short squeeze, starting in January 2021, was a short squeeze occurring on shares of GameStop, primarily triggered by the Reddit forum WallStreetBets. This squeeze led to the share price reaching an all-time intraday high of US$483 on January 28, 2021 on the NYSE. This squeeze caught the attention of many news networks and social media platforms.

Small-time investors DO have the power to meaningfully affect the market. All good things must come to an end however and leading into early February the hype around GME began to fade and at the time of writing it currently sits at 46 dollars a share. In early 2020, Tesla was shorted by investors betting on its failure, with 18% of its outstanding stock in short positions. However, short-sellers eventually lost $8 billion collectively, after Tesla stock went up by 400%. There are many moving factors in the stock market that influence whether a stock’s price goes up, down, or stays steady. One reason a stock price rises far beyond what’s anticipated is a Short Squeeze. The relative strength index measures the extent of price changes to determine overbought or oversold conditions in the stock market.

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One major example of a short squeeze occurred in October 2008, when a short squeeze caused the price of car manufacturer Volkswagen AG to soar on the Frankfurt markets. After the public received unexpected news that fellow car manufacturer Porsche was planning to increase its shares in Volkswagen, a flurry of investors suddenly began buying into the stock. This short squeeze briefly made Volkswagen the most valuable company in the world. Before we can describe how to make money on a short squeeze, we need to define short selling. Short selling occurs when investors bet against the price of a security or asset, believing that the price of the asset will decrease in the future. During a short, an investor will borrow a set number of shares of stock from someone on the market that currently owns them with the promise of returning the shares at a later date. Investors may short a stock on speculation, while hedge funds might use a short position as a form of insurance against a risky position held in the same asset.

Buying in when the price is too high can leave you with shares worth only a fraction of their original value after all short positions have been closed. The computation indicates the theoretical number of days, assuming average trading volume, that it will take for those who sold short to cover – exit – all of their positions. The higher the days to cover number is, the more prone the stock will be to a https://www.bigshotrading.info/.

The Basics of Short Selling

Now that we know how to define short squeeze and understand how it works, let’s look at a notable example in history. One of the biggest short squeezes that took place in history was the 2008 Volkswagen short squeeze.