Editing Short squeeze

{{short description|Rapid increase in the price of a stock owing primarily to technical factors}}
[[File:VW-Intraday-oct2008.png|thumb|right|400px|Chart showing the price movement and volume during the 2008 short squeeze of Volkswagen shares]]
In the [[stock market]], a '''short squeeze''' is a rapid increase in the price of a [[stock]] owing primarily to an excess of [[Short (finance)|short selling]] of a stock rather than underlying [[Fundamental analysis|fundamentals]]. A short squeeze occurs when [[Supply and demand|demand]] has increased relative to [[Supply and demand|supply]] because short sellers have to buy stock to cover their short positions.<ref>{{Cite web |title=Short Squeeze |url=http://www.investopedia.com/terms/s/shortsqueeze.asp |url-status=live |archive-url=https://web.archive.org/web/20100918073724/http://www.investopedia.com/terms/s/shortsqueeze.asp |archive-date=2010-09-18 |access-date=2010-09-17}}</ref>

==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>

==Examples==
In May 1901, [[James J. Hill]] and [[J. P. Morgan]] battled with [[E. H. Harriman]] over control of the [[Northern Pacific Railway]]. By the end of business on May 7, 1901, the two parties controlled over 94% of outstanding Northern Pacific shares. The resulting runup in share price was accompanied by frenetic short selling of Northern Pacific by third parties. On May 8, it became apparent that uncommitted NP shares were insufficient to cover the outstanding short positions, and that neither Hill and Morgan nor Harriman were willing to sell. This triggered a sell-off in the rest of the market as NP "shorts" liquidated holdings in an effort to raise cash to buy NP shares to meet their obligations. The ensuing stock market crash, known as the [[Panic of 1901]], was partially ameliorated by a truce between Hill/Morgan and Harriman.<ref>{{cite magazine |last=Low|first=Peter |date=2010 |title=The Northern Pacific Panic of 1901 |url=https://www.moaf.org/publications-collections/financial-history-magazine/96 |magazine=Financial History |publisher=Museum of American Finance}}</ref>

In October 2008, a short squeeze triggered by an attempted takeover by [[Porsche]] temporarily drove the shares of [[Volkswagen AG]] on the [[Xetra DAX]] from [[Euro|€]]210.85 to over €1000 in less than two days, briefly making it the most valuable company in the world.<ref>{{Cite news |last=Gow |first=David |date=29 October 2009 |title=Porsche makes more VW stock available to desperate short-sellers |work=[[The Guardian]] |url=https://www.theguardian.com/business/2008/oct/29/vw-volkswagen-short-selling |url-status=live |access-date=25 January 2021 |archive-url=https://web.archive.org/web/20210104091735/https://www.theguardian.com/business/2008/oct/29/vw-volkswagen-short-selling |archive-date=4 January 2021}}</ref><ref>{{Cite web |last=Krstić |first=Ivan |date=7 January 2009 |title=How Porsche hacked the financial system and made a killing |url=http://radian.org/notebook/porsche |url-status=dead |archive-url=https://web.archive.org/web/20100815093759/http://radian.org/notebook/porsche |archive-date=2010-08-15 |access-date=2010-11-25}}</ref> Then-Porsche CEO [[Wendelin Wiedeking]] was charged with [[market manipulation]] but was acquitted by a [[Stuttgart]] court.<ref>{{Cite web |date=2016-07-28 |title=Freispruch für Wiedeking rechtskräftig |url=http://www.spiegel.de/wirtschaft/unternehmen/wendelin-wiedeking-freispruch-fuer-ex-porsche-chef-rechtskraeftig-a-1105143.html |access-date=2017-10-25 |website=[[Spiegel Online]]}}</ref><ref>{{cite news |last1=Böcking |first1=David |title=Freispruch für die Porsche-Zocker |url=https://www.spiegel.de/wirtschaft/unternehmen/wendelin-wiedeking-und-holger-haerter-freispruch-fuer-die-porsche-zocker-a-1083046.html |access-date=25 February 2021 |work=Spiegel |date=18 March 2016}}</ref>

In 2012, the [[U.S. Securities and Exchange Commission]] charged [[Philip Falcone]] with market manipulation in relation to a short squeeze on a series of high-yield bonds issued by MAAX Holdings. After hearing that a firm was shorting the bonds, Falcone purchased the entire issue of bonds. He also lent the bonds to the short-sellers, and then bought them back when the traders sold them. As a result, his total exposure exceeded the entire issue of the MAAX bonds. Falcone then stopped lending the bonds, so that short-sellers could not liquidate their positions anymore. The price of the bonds rose dramatically.<ref name="NYT 120628">{{Cite news |last=Henning |first=Peter J. |date=28 June 2012 |title=In Case Against Philip Falcone, a Warning to Others |work=New York Times |url=https://dealbook.nytimes.com/2012/06/28/in-case-against-philip-falcone-a-warning-to-others/ |access-date=29 January 2021}}</ref><ref name="MS 210126">{{Cite news |last=Levine |first=Matt |date=26 January 2021 |title=GameStop Is Just a Game |work=Bloomberg Opinion |url=https://www.bloomberg.com/opinion/articles/2021-01-26/will-wallstreetbets-face-sec-scrutiny-after-gamestop-rally |access-date=29 January 2021}}</ref> The short-sellers could only liquidate their positions by contacting Falcone directly.<ref name="MS 210126" />

In November 2015, [[Martin Shkreli]] orchestrated a short squeeze on failed biotech KaloBios (KBIO) that caused its share price to rise by 10,000% in just five trading days. KBIO had been perceived by short sellers as a "no-brainer near-term zero".<ref>{{Cite web |date=August 1, 2018 |title=How Martin Shkreli caused a 10,000% squeeze on KBIO |url=https://moxreports.com/kbio-infinity-squeeze/ |access-date=January 26, 2021 |website=Mox Reports |language=en}}</ref>

The [[GameStop short squeeze]], starting in January 2021, was a short squeeze occurring on shares of [[GameStop]],<ref>{{Cite web |last=Smith |first=Connor |title=Short Squeeze Sends GameStop Shares to 2007 Levels. What Happens Next. |url=https://www.barrons.com/articles/short-squeeze-sends-gamestop-shares-to-2007-levels-what-happens-next-51611348093 |url-status=live |archive-url=https://web.archive.org/web/20210124183939/https://www.barrons.com/articles/short-squeeze-sends-gamestop-shares-to-2007-levels-what-happens-next-51611348093 |archive-date=24 January 2021 |access-date=25 January 2021 |website=Barrons}}</ref><ref>{{Cite web |last=Ferré |first=Ines |title=GameStop shares soar 50% as massive short squeeze forges ahead |url=https://www.sports.yahoo.com/news/game-stop-shares-up-50-in-premarket-as-massive-short-squeeze-forges-ahead-133819632.html |url-status=live |archive-url=https://web.archive.org/web/20210125152814/https://sports.yahoo.com/news/game-stop-shares-up-50-in-premarket-as-massive-short-squeeze-forges-ahead-133819632.html |archive-date=25 January 2021 |access-date=25 January 2021 |website=Yahoo! Sports}}</ref> primarily triggered by the [[Reddit]] forum [[WallStreetBets]].<ref name="yun li">{{Cite web |last=Li |first=Yun |date=January 27, 2021 |title=GameStop mania explained: How the Reddit retail trading crowd ran over Wall Street pros |url=https://www.cnbc.com/2021/01/27/gamestop-mania-explained-how-the-reddit-retail-trading-crowd-ran-over-wall-street-pros.html |url-status=live |archive-url=https://web.archive.org/web/20210127221220/https://www.cnbc.com/2021/01/27/gamestop-mania-explained-how-the-reddit-retail-trading-crowd-ran-over-wall-street-pros.html |archive-date=January 27, 2021 |access-date=January 27, 2021 |website=[[CNBC]]}}</ref><ref>{{Cite magazine|last=D'Anastasio |first= Cecilia |title=A Fight Over GameStop's Soaring Stock Turns Ugly |url=https://www.wired.com/story/gamestop-stock-wall-street-bets-short-squeeze/ |url-status=live |archive-url=https://web.archive.org/web/20210124173424/https://www.wired.com/story/gamestop-stock-wall-street-bets-short-squeeze/ |archive-date=24 January 2021 |access-date=25 January 2021 |magazine=Wired |language=en-us}}</ref> This squeeze led to the share price reaching an all-time intraday high of US$483 on January 28, 2021 on the [[New York Stock Exchange|NYSE]].<ref name="NYSE">{{Cite web |title=NYSE GAMESTOP CORPORATION GME |url=https://www.nyse.com/quote/XNYS:GME |url-status=live |archive-url=https://web.archive.org/web/20210119153914/https://www.nyse.com/quote/XNYS:GME |archive-date=January 19, 2021 |access-date=January 28, 2021 |website=www.nyse.com}}</ref><ref>{{cite news |last1=McCabe |first1=Caitlin |last2=Ostroff|first2=Caitlin|date=May 26, 2021 |title=GameStop, AMC Entertainment Shares Soar as Meme Stock Rally Returns |url=https://www.wsj.com/articles/gamestop-amc-entertainment-shares-soar-as-meme-stock-rally-returns-11622055813?reflink=desktopwebshare_permalink|website=www.wsj.com}}</ref> This squeeze caught the attention of many news networks and social media platforms.<ref>{{Cite news|last1=Phillips|first1=Matt|last2=Lorenz|first2=Taylor|date=2021-01-27|title='Dumb Money' Is on GameStop, and It's Beating Wall Street at Its Own Game|language=en-US|work=The New York Times|url=https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html|access-date=2021-04-06|issn=0362-4331}}</ref>

In March 2022, a [[LME Nickel#2022 suspension of Nickel trading by the LME|short squeeze was initiated on nickel contracts]] on the [[London Metal Exchange]] (LME). In the months prior, industrialist [[Xiang Guangda]] took a large short position on LME nickel, but a rise in nickel prices following the [[Russian invasion of Ukraine]] forced Guangda make significant purchases to cover his position, causing LME nickel prices to rise by around 250 percent. On paper this would've caused Guangda billions of dollars of losses, but the LME halted all trading on nickel contracts and reversed many of the trades which occurred during the squeeze, shielding Guangda from much of the loss.<ref>{{cite news |last1=Hume |first1=Neil |last2=Lockett |first2=Hudson |last3=Olcott |first3=Eleanor |last4=Li |first4=Gloria |title=Xiang Guangda, the metals 'visionary' who brought the nickel market to a standstill |url=https://www.ft.com/content/2cb73138-24ae-4e10-a8fd-5558c7155461 |access-date=12 March 2022 |work=Financial Times |date=11 March 2022}}</ref><ref>{{Cite news |author=The Editorial Board |date=2022-03-22 |title=Opinion {{!}} A Chinese Nickel Market Mystery |language=en-US |work=Wall Street Journal |url=https://www.wsj.com/articles/a-chinese-nickel-market-mystery-london-metal-exchange-tsinghsan-11647982954 |access-date=2022-11-16 |issn=0099-9660}}</ref><ref>{{cite news |title="Big Shot's" Nickel Short Squeeze: Who is Xiang Guangda? |url=https://www.finews.asia/people/36479-nickel-short-squeeze-who-is-xiang-guangda |access-date=12 March 2022 |work=finews.asia |date=10 March 2022 |language=en-gb}}</ref>

==See also==
*[[Short interest ratio]]
*[[Stock market crash]] – a short squeeze is effectively a reverse crash

==References==
{{reflist}}

==External links and sources==
*[http://www.erlangerchartroom.com/squeezeplay.asp What is a Squeeze Play?]
*[https://www.telegraph.co.uk/finance/globalbusiness/3362913/Porsche-crashes-into-controversy-in-the-ultimate-short-squeeze.html "Porsche crashes into controversy in the ultimate 'short squeeze'"]

{{stock market}}

[[Category:Short selling]]