Short Squeeze



Next video:
Loading the player...

A short squeeze refers to a jump in a stock's price, forcing a large number of short sellers to close their position, which in effect pushes the price even higher.

When an investor shorts a stock, he borrows shares from another account and sells them, agreeing to replace the stock at a later date. Short sellers predict the price will go down, enabling them to buy the shares at a lower price.

When the share price starts to rise, many of these same investors will decide to buy the stock before their losses escalate further. This flood of buy orders causes the price to climb even more.

Contrarian investors will sometimes try to cash in on this phenomenon by taking a long position on heavily shorted stocks – that is, buying them with the hope that they’ll appreciate.

Going against the crowd like this is typically a high-risk, high-reward proposition. Even so, some feel it’s safer to bet on a stock rising than on one falling, where the potential losses are limitless.

Related Articles
  1. Mutual Funds & ETFs

    High Dividend ETF: iShares Core High Dividend vs. Vanguard Dividend Appreciation (HDV, VIG)

    Get a comparison review of two high dividend yield ETFs: the iShares Core High Dividend ETF and the Vanguard Dividend Appreciation ETF.
  2. Retirement

    A Guide to Arizona's State Retirement System

    The Arizona State Retirement System offers a defined-benefit plan for former teachers, state workers and public employees.
  3. Mutual Funds & ETFs

    2 Reasons to Be Wary of New ETFs (IFLY, EQLT)

    Pay attention to the number of thematic and smart beta ETFs that may fail to survive as a result of poor performance and thin trading volume.
  4. Forex

    Global Utilities: Exploring Revenue Trends & Fundamentals

    Analyze global revenue exposure in the utilities sector to learn about the impact of currency, regulation and economic growth on geographic contributions.
  5. Home & Auto

    4 Alternatives to a Traditional Mortgage

    If you can't qualify for or don't want a traditional mortgage, one of these options might be right for you.
  6. Home & Auto

    Understanding Mortgage Impound Accounts

    Home buyers with low down payments may get stuck with higher mortgage payments. Find out what you get for the extra money.
  7. Investing

    Municipal Bonds Offer Something More for Everyone

    Are municipal bonds really for me? The popular perception is that tax-exempt income only benefits those investors in the highest tax brackets.
  8. Retirement

    5 Top Alternatives to a Reverse Mortgage

    If you have substantial home equity and don't want to do a reverse mortgage to tap it for retirement expenses, cost out these viable alternatives.
  9. Credit & Loans

    What Is an Alt-A Mortgage?

    Called "liar loans" for their low documentation requirements, Alt-A mortgages were hot until the subprime crisis. Now Wall Street wants to bring them back.
  10. Home & Auto

    Understanding Mortgage-Backed Securities

    Find out the meaning of this popular asset-backed security and its benefits for banks and investors.
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center