![]() GME attracted substantial media attention as retail investors celebrated the losses of hedge funds. Since then, in the aftermath of the GME saga, more retail investors attempted to anticipate the next upcoming short squeeze by examining the companies that hedge funds were actively shorting. GameStop Short Squeeze (Source: S&P Global) AMC Theaters (NYSE: AMC): Short Squeeze Example Soon after, a clash between retail investors - with a major role played by the subreddit r/wallstreetbets - and institutional hedge funds ensued. the short interest was greater than the actual shares outstanding, a rare sight to see, meaning that many GME shares were “borrowed” multiple times as part of the short selling. The short interest on GameStop was in excess of 130% and even peaked over 140% at one point, i.e. GameStop (NYSE: GME), the brick-and-mortar retailer selling video games, gaming merchandise, and consumer electronics, was a prime target for short-sellers. GameStop (NYSE: GME): Short Squeeze Example Sometimes, as part of the contractual agreement, the broker can place additional pressure (or even force) the short seller to buy the shares and return them.įor certain market participants, a short squeeze can often work in their favor and make their positions generate very profitable returns, but attempting to predict the next short squeeze is a highly risky strategy. Step 3 → If the share price declines, the short seller can repurchase the shares and profit from the difference between the price at which they were sold (including transaction fees) and the price the shares were bought back – but if the reverse occurs, a short squeeze can transpire.īy continuing to hold their short positions, short-sellers can incur substantial losses - in which the potential downside is theoretically limitless.Įven if the investor remains adamant about being correct on their short thesis, the shares previously sold were borrowed shares, so the shares must eventually be returned to the brokerage firm or institution that originally lent the shares.Step 2 → Later on, the short-seller must repurchase the borrowed shares at the current share price to close out their positions.Step 1 → The short-seller borrows shares from a brokerage to sell them in the open market under the belief the share price will soon decline.Simply put, short selling is a risky strategy – and the general process is described below. Short Squeeze: Risky Stock Market Investing Strategies Rising Share Price + Lack of Supply → Accelerated Upward Share Price Movement. ![]()
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