2/21/2023 0 Comments Volkswagen short squeeze![]() ![]() Or else, stand firm – and risk incurring even more heavy losses. And because they had borrowed funds to help them short GME, they now had return the funds by buying the stock at elevated prices. When the stock started shooting up, these short-sellers were caught in a short squeeze. This was bad news for traders who had bet that GME stock would keep falling. In January 2021, shares of GameStop ( NYSE: GME), which had been trading around $2.57 per share, suddenly skyrocketed, eventually reaching $500 – when retail traders on Reddit forum Wall Street Bets started buying the stock. You don’t have to go back very far to learn about one of the most remarkable short squeezes of all time. Consequently, this forces even more shorts to cover their positions or buy back. The rising demand for the stock attracts more buyers, which sends the stock higher. Short squeeze meaningĪ short squeeze, on the other hand, is when the price of a stock begins to rise rapidly, forcing short-sellers who had bet against the stock to hastily buy the stock back to avoid incurring further losses.īy buying back their short positions, the short-sellers trigger a loop. This is known as “short covering” and you will keep the difference as a good profit on the short sale.īut if should you be wrong and the price of DAL stock moves up, you will be in hot soup and forced to buy the shares at an elevated price like $15 and end up with a $500 loss. If your prediction is right – and the price of DAL begins to fall – you can then buy 100 DAL shares at a significantly lower price to replace the ones you borrowed. Your cash balance will increase by $2,000 and the value of your shares will drop by $2,000. Your stockbroker is going to borrow the shares, and offload them on your behalf. So, you make an order to short sell 100 shares of DAL and you get filled $20. Let’s say you do some research and believe that Delta Airlines ( NYSE: DAL)’s traffic is on the decline and oil prices are heating up and you think the stock will continue its downward trajectory for at least the short-term. The best way to understand this trading strategy is by looking at the following example. The profit is simply the difference between the price at which the short-seller sold the shares and the price he purchased them back at less any transaction and borrowing costs. Short-sellers profit by offloading the borrowed shares at an elevated price and subsequently repurchasing them at a lower price if the price of the stock goes down. Traders that engage in this type of market speculation are known as short-sellers or shorts. This strategy first involves borrowing a certain amount of shares of the stock you wish to sell at a market-determined interest rate and then selling those borrowed shares to profit from a future market drop. Short selling is a type of strategy that traders use to speculate on a future drop in the price of a particular stock. Let’s have a look at the definitions of “short selling” and “short squeeze,” and then dive into the VW short squeeze of 2008. 28, 2008, it plunged 58% in four days and by September that year, the shares were down 70% from their top, giving away most of the squeeze.Īlthough it has been over a decade since the Volkswagen short squeeze, there are still many lessons that day traders can learn from this particular stock market event. Thirteen years ago this month, the Frankfurt-listed shares of Volkswagen more than quadrupled in two days, briefly making the German automaker the most valuable company in the world.Īfter the stock’s peak on Oct. ![]()
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