Short squeeze

Chez Guevara — Dining in style at the Disaster Café™ From our machine overlords Here is what, NiGEL, our cheeky little GPT3 chatbot had to say when asked to explain: A short squeeze is a situation in which the price of a security rises rapidly, forcing a large number of short sellers to buy back borrowed stock at a higher price than it was at when they borrowed it in the first place to cover their positions when they run out of cash, or cojones, to keep the position on. This can create a self-reinforcing cycle as the rising price attracts more buyers and puts further upward pressure on the price. Short squeezes can occur for many reasons, such as unexpectedly positive news about the stock, a change in market conditions or a sudden increase in demand driven by some jokey memesters on Reddit who are intent on giving the wedgie to our hedge-fund edge-lords. Short squeezes can also have significant consequences for the broader market, leading to increased volatility, disruption of normal trading patterns, SEC enforcement action against day-traders, industry titans being obliged to defend the inherent conflicts of interest in payment for order flow and a deluge of LinkedIn thought-pieces about how to extract rent opportunistically advising on regulations that have not yet been, and may never be, enacted. As a result, after the fact, regulators, market participants and their professional advisers will take loud virtue-signalling but almost certainly meritless steps to prevent or mitigate the effects of future short squeezes. view template Disclaimer: NiGEL’s a neural network, he drinks a lot, and he spends too much time on the internet, so if you listen to anything he has to say you only have yourself to blame. Come to think of it, that is also true of the JC in general. Index: Click ᐅ to expand: Disaster Café Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here. Premium version of this page

A situation most entertainingly illustrated when hedge fund wizard Gabriel Plotkin drove his fund Melvin Capital Management LP into a wall too close to the bottom of the range where, whilst innocently shorting GameStop, he got rudely sacked by a bunch of Barbarian day-traders on Reddit. As the saying goes, “when the fun stops, GameStop!” Sadly, when you are short the same rat every other bugger is chasing up a drainpipe, there isn’t any way of stopping, not without dropping six or seven yards, almost taking Citadel with you and having to shutter your fund.

Where are they now?

Mr Plotkin is now a relief geography teacher at a night school in Queens.

See also

• Bottom of the range