However sound their reasoning, a positive news story, a product announcement, or an earnings beat that excites the interest of buyers can upend this. In order to understand this, we must first know how you can short stocks. Shorting or short selling is based on the investor or the day trader borrowing shares and selling them. You can trade Treasury securities and Regulation A securities on the Public platform.
Traders with short positions were covering because they had to, either because they had sustained large losses or shares were no longer available to be borrowed. In 2022, short sellers targeted troubled companies such as Bed, Bath & Beyond (BBBY) and Carvana (CVNA). In early 2023, the most heavily shorted companies included Coinbase Global (COIN), a cryptocurrency firm, and Occidental Petroleum (OXY). A Short Squeeze can seemingly happen suddenly with price rising parabolically. But often short squeezes are fueled by unusually high short interest in the underlying security.
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Will the upcoming quarterly earnings report undo today’s rally? The stock market is merciless against firms that posted weak results. For example, Cognizant (CTSH) resumed its downtrend after forecasting lower corporate sales.
This unexpected rise in the share price can signal to other short-sellers to exit the short, further driving the price up. Positive product news or earnings reports can quickly derail a short. Frantic buying can drive stock prices to rise out of control, squeezing the short-sellers out of their positions. Naked shorting still happens thanks to discrepancies between electronic and paper trading. Naked shorting can help exacerbate https://www.bigshotrading.info/s by allowing for additional shorting that otherwise might not exist.
Short Interest Data
A short position occurs when a short seller sells a stock with the intention of buying it back later at a lower price for profit. When a short seller decides to sell the security, it’s called short selling. Short selling is when a short seller predicts that the value of a stock will decrease. To profit, the short seller will borrow the stock from their brokerage to sell and then purchase the stock back later at a lower price.
GameStop is one of the most high-profile short squeezes of the recent past. The trading action gripped investors (and arguably still does) as the stock remains at an elevated price long after the immediate short squeeze. The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice.
The GME GameStop Short Squeeze Explained
Short squeezes can happen naturally, too, when share prices leap in response to unexpected news. Daily moving average charts show where a stock has traded for a set time period. Looking at a 50-day (or longer) moving average chart will show whether there are peaks in a stock’s price. To view moving average charts, check out one of the many charting software programs available. These will allow you to plot this on your chosen stock’s chart. Most stock market participants invest using buy-and-hold strategies, aiming to identify strong companies with bright, long-term futures.
That being said, the notoriety of meme stocks has led to more online resources for evaluating short interest. If you search “short squeeze” on WallStreetBets, you’ll get thousands of hits. At the time AMC’s service went live, AMC stock was trading for around $32. Traders rushed to the bid line, snatching up shares and bullish call options. Now, the price is shooting up, and shorts are exiting positions like crazy, buying to cover.
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Contrarian investors who have built up long positions in the stock in anticipation of a short squeeze will benefit as the stock price climbs. Enough investors started buying the stock late in 2020 and the share price began to rise noticeably late in 2020. From there, it was a snowball effect of retail investors buying stock and call options. The price increase drove out some short sellers and attracted various big-name investors and public figures, such as Elon Musk and venture capitalist Chamath Palihapitiya. A notable short squeeze occurred among traders and investors of GameStop Corp. (GME) during the months following the COVID-19 pandemic. The short interest had grown so dramatically that it amounted to more than 100% of the shares outstanding.
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- Eventually, the short-sellers are squeezed out leading to demand which in turn pushes the stock higher.
- When Driverless gets an important approval, its share prices skyrocket to $60.
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- Just because a stock has a short interest it doesn’t mean that the stock will fall.
When you have the combination of the above three, you can expect a ripe opportunity in the market to trade the short squeeze. If you look at the technical chart, as the short interest started to increase, price fell sharply. At the same time, the technical indicators were pointing to a bullish divergence. A bullish divergence is where the new low in price fails to form a new low on the oscillator.