What Is a Short Squeeze?
A short squeeze happens when a heavily shorted stock starts rising and short sellers rush to buy it back, which pushes the price up even faster.
How a short squeeze happens
- Many traders bet against a stock through short selling.
- Good news or heavy buying lifts the price.
- Short sellers face growing losses and buy shares to close their bets.
- That extra buying pushes the price higher, forcing even more short sellers out.
The GameStop squeeze
In January 2021, online investors piled into GameStop, a heavily shorted stock. The price rose many times over in days. Some hedge funds that had bet against it lost billions.
Signs a stock could be squeezed
A high share of its stock sold short, and few shares trading each day. Both make it hard for short sellers to exit. But squeezes are hard to predict, and prices often crash afterward.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Short sellingBetting that a price will fall.
Meme stocksStocks pushed up by online crowds.
VolatilityHow much and how fast a price moves.
Hedge fundA private fund for rich investors that can bet in many ways.
LiquidityHow easily you can buy or sell without moving the price.
Call optionThe right to buy a stock at a set price.