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.
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.
