Editing Short squeeze (section)

==Overview==
[[Short selling]] is a [[finance]] practice in which an [[investor]], known as the short-seller, borrows [[share]]s of [[stock]] and immediately sells them, hoping to buy them back later ("covering") at a lower price. As the shares were borrowed, the short-seller must eventually return that number of shares to the lender (plus interest and [[dividend]]s, if any), and therefore makes a profit if they spend less buying back the shares than they received at the earlier date when selling them. However, an unexpected piece of favorable news can cause a jump in the stock's [[share price]], resulting in a loss rather than a profit. Short-sellers might then be triggered to buy the shares they had borrowed at a higher price, in an effort to keep their losses from mounting should the share price rise further. 

Short squeezes result when short sellers of a stock move to cover their positions, purchasing large volumes of stock relative to the [[Market (economics)|market]] volume. Purchasing the stock to cover their short positions raises the price of the shorted stock, thus triggering [[Law of demand#Certain scenarios in stock trading|more short sellers to cover their positions by buying the stock]]; i.e., there is increasing demand. This dynamic can result in a cascade of stock purchases and an even bigger jump of the share price.<ref name="WSJ 151205">{{Cite news |last=Constable |first=Simon |date=6 December 2015 |title=What Is a Short Squeeze? |work=Wall Street Journal |url=https://www.wsj.com/articles/what-is-a-short-squeeze-1449460381 |access-date=29 January 2021}}</ref><ref name="FT 210125">{{Cite news |last=Powell |first=Jamie |date=25 January 2021 |title=GameStop can't stop going up |work=FT Alphaville |url=https://www.ft.com/content/7aa60aa1-484f-4747-9136-cd0a560dd2d8 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/7aa60aa1-484f-4747-9136-cd0a560dd2d8 |archive-date=2022-12-10 |url-access=subscription |url-status=live |access-date=29 January 2021}}</ref> Borrow, buy and sell timing can lead to more than 100% of a company's shares sold short.<ref>Caplinger, Dan [https://www.fool.com/investing/2021/01/28/yes-a-stock-can-have-short-interest-over-100-heres/ Yes, a Stock Can Have Short Interest Over 100 Percent] [[The Motley Fool]], Jan 2021</ref><ref>Sizemore, Charles Lewis [https://www.kiplinger.com/investing/602165/what-exactly-is-a-short-squeeze What Exactly Is a Short Squeeze?] [[Kiplinger]], January 28, 2021</ref> This does not necessarily imply [[naked short selling]], since shorted shares are put back onto the market, potentially allowing the same share to be borrowed multiple times.<ref name="Planes09032020">{{Cite news |last=Planes |first=Alex |date=9 March 2020 |title=This Is the Most Shorted Stock in the Market Right Now |work=The Motley Fool |url=https://www.nasdaq.com/articles/this-is-the-most-shorted-stock-in-the-market-right-now-2020-03-09 |access-date=1 February 2021}}</ref>

Short squeezes tend to happen with stocks that have expensive borrow rates. Expensive borrow rates can increase the pressure on short sellers to cover their positions, further adding to the reflexive nature of this phenomenon.

Buying by short sellers can occur if the price has risen to a point where shorts receive [[margin call]]s that they cannot (or choose not to) meet, triggering them to purchase stock to return to the owners from whom (via a broker) they had borrowed the stock in establishing their position. This buying may proceed automatically, for example if the short sellers had previously placed [[Stop loss order|stop-loss orders]] with their [[broker]]s to prepare for this possibility. Alternatively, short sellers simply deciding to cut their losses and get out (rather than lacking collateral funds to meet their margin) can cause a squeeze. Short squeezes can also occur when the demand from short sellers outweighs the supply of shares to borrow, which results in the failure of borrow requests from [[Prime brokerage|prime brokers]]. This sometimes happens with companies that are on the verge of filing for bankruptcy.

===Targets for short squeezes===
Short squeezes are more likely to occur with listed stocks with relatively few traded shares and commensurately small [[market capitalization]] and [[float (finance)|float]]. Squeezes can, however, involve large stocks and billions of dollars. Short squeezes may also be more likely to occur when a large percentage of a stock's float is short, and when large portions of the stock are held by people who are not tempted to sell.<ref>{{Cite web |title=Short Squeezes |url=https://www.investorsunderground.com/short-squeezes/ |url-status=live |archive-url=https://web.archive.org/web/20180808043423/https://www.investorsunderground.com/short-squeezes/ |archive-date=8 August 2018 |access-date=11 November 2016 |website=Investors Underground}}</ref>

Short squeezes can also be facilitated by the availability of inexpensive [[call option]]s on the underlying security because they add considerable leverage. Typically, [[out of the money]] options with a short time to expiration are used to maximize the leverage and the impact of the squeezer's actions on short sellers. Call options on securities that have low [[implied volatility]] are also less expensive and more impactful. (A successful short squeeze will dramatically increase implied [[volatility (finance)|volatility]]).<ref>{{Cite web |title=Options Helped Fuel the GameStop Stock Squeeze. Here's How That Works. |url=https://www.barrons.com/articles/options-helped-fuel-the-gamestop-stock-squeeze-heres-how-that-works-51611872643 |url-status=live |archive-url=https://web.archive.org/web/20210424180649/https://www.barrons.com/articles/options-helped-fuel-the-gamestop-stock-squeeze-heres-how-that-works-51611872643 |archive-date=24 April 2021 |access-date=6 June 2021 |website=Barron's}}</ref>

===Long squeeze ===
The opposite of a short squeeze is the less common [[long squeeze]]. A squeeze can also occur with [[futures contracts]], especially in agricultural commodities, for which supply is inherently limited.<ref>{{Cite news |last=Thomas |first=John |date=13 September 2010 |title=A Short Squeeze In Corn May Hit The Market |work=OilPrice.com |url=https://oilprice.com/Metals/Commodities/A-Short-Squeeze-In-Corn-May-Hit-The-Market.html |url-status=live |access-date=25 January 2021 |archive-url=https://web.archive.org/web/20200927073752/https://oilprice.com/Metals/Commodities/A-Short-Squeeze-In-Corn-May-Hit-The-Market.html |archive-date=27 September 2020}}</ref>

===Gamma squeeze===
The sale of [[naked call]] options creates a short position for the seller, in which the seller's loss increases with the price of the [[underlying]] asset and is therefore potentially unlimited. Sellers have the option of hedging their position by, among other things, buying the underlying asset at a known price at any time before the option is exercised, converting their naked calls into [[covered call]]s. By buying calls, per unit of capital invested, the buyer can create a larger upward pressure on the price of the underlying than they could by buying shares: this pressure is in fact realized when the seller purchases the underlying, and is greater if the seller invests more capital hedging their position by buying the (expensive) underlying than the buyer invests to purchase the (inexpensive) calls.

The resulting upward pressure on the price of the underlying can develop into a [[positive feedback]] loop, as call-sellers react to the rising price by buying the underlying to avoid exposure to the risk that its price may rise further.<ref>{{Cite news |last=Aggarwal |first=DK |title=What happens when stock prices shoot up because of Gamma Squeeze | work=The Economic Times |url=https://economictimes.indiatimes.com/markets/stocks/news/what-happens-when-stock-prices-shoot-up-because-of-gamma-squeeze/articleshow/83059269.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst |access-date=May 30, 2021}}</ref>