Template:AI Short squeeze: Difference between revisions
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A [[short squeeze]] is a situation in which the price of a security rises rapidly, | A [[short squeeze]] is a situation in which the price of a [[security]] rises rapidly, forcing a large number of [[short seller]]s to buy back [[stock lending|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 squeeze]]s 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 [[melvin|wedgie]] to our hedge-fund edge-lords. | [[Short squeeze]]s 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 [[melvin|wedgie]] to our hedge-fund edge-lords. | ||
Latest revision as of 18:04, 23 December 2022
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.