short squeeze

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors
by Spencer Jakab
Published 1 Feb 2022

GameStop shares surged by 22 percent on April 13. Then they jumped by nearly 26 percent the following day to close at $5.95. This was a short squeeze, but it wasn’t the big one yet. The brief surge certainly didn’t spook Gabe Plotkin or many other deep-pocketed funds betting against the retailer. In fact, the rally would soon lead them to increase their wager. At the end of the month, the always-astute Gill weighed in: “Plus there’s now an opportunity for a short squeeze of some sort, though that was never a part of my original thesis. I still think it’s unlikely but when the shorts exceed the float the possibility needs to be factored in.”

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But if enough people buy a stock that many short sellers have targeted, pushing its price higher, the short sellers might be forced to exit the position by buying it back, in the process exacerbating the rise in the stock and their own losses. That is a short squeeze. A “corner”—which is extremely rare and is very difficult to execute legally since securities laws were changed in the 1930s—is an extreme type of short squeeze when there simply aren’t enough shares to purchase because some person or group has sewn up the supply. Then you can practically name your price, and the short seller has to pay it or “go to pris’n.” You could be forgiven for thinking that the environment in which Senior_Hedgehog and other WallStreetBets users hatched the idea of putting the squeeze on hedge funds that had borrowed nearly all the available shares of GameStop was some sort of boom time for short sellers.

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“After being beaten up and left for dead on the side of the road, suddenly short sellers are the villains,” says an exasperated Jim Chanos, founder of Kynikos Associates and dean of the short-selling community.[4] But did the WallStreetBets crowd really engineer the “biggest short squeeze of your entire life”? Not unless they were very young. A (Short) History of Squeezes Volkswagen would briefly become the world’s most valuable company as the result of a short squeeze. In the spring of 2008, Porsche, which had long held a 31 percent stake in its fellow German automaker, indicated its desire to gain more influence over the larger company but stated explicitly that it had no intention of going as high as 75 percent since the state of Lower Saxony held a block of 20 percent of the shares, giving it considerable sway.

The Antisocial Network: The GameStop Short Squeeze and the Ragtag Group of Amateur Traders That Brought Wall Street to Its Knees
by Ben Mezrich
Published 6 Sep 2021

And even though many events had challenged that logic over the years—bubble after bubble, the occasional market hiccup, the crash of 2008—in the end, people tended to act in their own best interests. They bought when they saw value, and they sold when they sensed things were about to go the other way. All the talk going on about short squeezes—most likely, it was just that, talk. Every time a stock with ugly fundamentals went up, amateur traders loved to shout about short squeezes. But they almost never actually happened. Maybe fifteen times in the past decade had a true short squeeze actually occurred. Jim would continue to do his job diligently as he always did, keeping an eye on those clearing deposits, making sure everything continued to run smoothly.

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And you certainly couldn’t blame Vlad himself, or derive baseless, wild conspiracy theories from what could easily be described as the result of a series of logical, if coincidental, occurrences. Melvin’s short position had exploded into a short squeeze because the retail traders on WallStreetBets had targeted GameStop, had bought and bought and bought, causing massive volume and price volatility. Robinhood, through which a large portion of those retail traders had bought their GameStop, had suddenly faced a massive deposit requirement because of that volatility—and had been forced to shut down buying of GameStop. True, one could argue, this in turn would stop the rise in GameStop’s stock, poking a pin into the short squeeze, potentially allowing the hedge funds to cover. And also, true, Citadel—who BY COINCIDENCE handled most of Robinhood’s trades and BY COINCIDENCE provided the lion’s share of Robinhood’s profits through its payment for order flow mechanism—now had a financial stake in Melvin Capital, most associated with those shorts—and had just helped lift—NOT BAIL—Melvin out of its precarious financial situation via a $2.75 billion infusion of cash along with Steve Cohen.

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Premarket, the stock had momentarily crossed $500 a share—halfway to the insane $1000 price target that had been predicted all over the WSB board—and seemed utterly unstoppable. Then Robinhood had pulled the plug—and it was like a shotgun blast to the short squeeze. The stock had plunged, more than 40 percent, opening at $265 a share. From there, it had been a roller coaster—the stock descending as low as $112.25, then struggling back up toward its close, minutes away, of $193.60. If there was any question as to whether you could point squarely at Robinhood and the other online brokerages as to why the short squeeze had apparently imploded, you needed only to look at the daily trading volumes. With the buy side effectively squelched, the volume of shares traded had dropped to almost half of what it had been the day before; compared to Monday and Tuesday of that week, the volume had descended by two-thirds.

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

Novice investors should avoid this strategy because its risks are unlimited. A stock price may fall to $0 but could rise to infinity. Related Terms: • Buy to Cover • Naked Shorting • Short Covering • Minimum Margin • Short (or Short Position) Short Squeeze What Does Short Squeeze Mean? A situation in which the price of a stock moves upward because of a lack of supply and an excess of demand. Investopedia explains Short Squeeze Short squeezes occur more often in smaller-cap stocks with small floats. If a stock starts to rise rapidly, the trend may continue because the short sellers probably will want to unwind their short positions (buy back to cover the short).

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Buybacks can be carried out in two ways: (1) Shareholders may be given a tender offer by which they have the option to submit (or tender) a portion or all of their shares back to the company within a certain time frame and at a premium to the current market price. The premium is compensation for tendering their shares rather than holding on to them. (2) Companies buy back shares on the open market over an extended period. Related Terms: • Debt Financing • Outstanding Shares • Short Squeeze • Dilution • Short Covering C call What Does Call Mean? (1) The period of time between the opening and the closing of some future markets in which the prices are established through an auction process. (2) An option contract giving the owner the right (but not the obligation) to buy (call away) a specified amount of an underlying security at a specified price within a specified period.

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Investopedia explains Liquidity (1) Sometimes it is safer to invest in liquid assets than in illiquid ones because liquid assets make it easier for an investor to get his or her money out of the investment more quickly. (2) Examples of assets that are easily converted into cash include blue-chip stocks and money market securities. Related Terms: • Illiquid • Cash and Cash Equivalents—CCE • Liquidity Ratios • Volume • Short Squeeze Liquidity Ratios What Does Liquidity Ratios Mean? A class of financial metrics used to help determine a company’s ability to pay off its short-term debt obligations. Generally, the higher the value of the ratio is, the larger the margin of safety that the company possesses to cover short-term debts.

Beat the Market
by Edward Thorp
Published 15 Oct 1967

Lewis Harder, President of International Mining, was aggressively purchasing the common stock and the warrant. By early August, International Mining held 36,300 warrants. (Kennecott Copper Corporation held 14,285 warrants; these two holdings accounted for 27% of the 186,000 outstanding warrants.) When the source of the buying was discovered, rumors spread that a short squeeze was being attempted. A short squeeze occurs 59 when one person or group gains possession of virtually all the certificates of a security which many have sold short. (This is called cornering the market.) Then, by demanding return of the borrowed securities, this person or group forces the short sellers to buy them back at once.

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A few years earlier, Eddie Gilbert, the colorful financier who later took refuge in Brazil because of ventures that backfired, had cornered the market in the stock of E. L. Bruce, driving its price from 17 to 195. Gilbert’s short squeeze was well remembered. In a New York Times interview of July 28, Mr. Harder claimed he had no intention of getting anyone “in trouble”; he was only interested in eventually converting the warrants. Since simple calculations show that an astute, knowledgeable person wanting the common would not buy and convert the warrants, this strengthened the rumor that a short squeeze was in progress. Many chose to help corner the market in Moly warrants. On Monday, July 30, the warrants reached 24 and the common 32.

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The potential future for the basic system. Performance through the 1929 crash. 8 MORE ON WARRANTS AND HEDGING 103 Over-the-counter, regional, and Canadian warrants. What determines warrant prices? What is a warrant worth? Reverse hedging. Spotting candidates for reverse hedging. 9 CAN ANYTHING GO WRONG? 127 Short squeezes. 1929 again? Volatile price movements. Extension of warrant privileges. Banning of short sales. Extensive use of the basic system. 10 THE GENERAL SYSTEM: THE EVALUATION OF CONVERTIBLE SECURITIES 141 Scope of convertibles. Convertible bonds. Anatomy of a convertible bond. Reverse hedging with Collins Radio “warrants.”

When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle
by Scott Wapner
Published 23 Apr 2018

We didn’t anticipate that Carl would come in and legitimize the bull case and make it into a short squeeze.” Ackman had made it clear by shorting even more stock that he wasn’t ready to give up. The only issue was whether Icahn would follow through on his longtime threat to squeeze Bill Ackman until he crushed him. 15 FINALE OR FAKEOUT? The thought of Icahn taking Herbalife private had hung in the air from nearly the beginning of the battle, ever since the investor had mentioned the “mother of all short squeezes” back in January 2013 in the infamous brawl with Ackman. Icahn had broached the subject several times with Michael Johnson, both on the phone and in person, with both men knowing nothing could happen until the FTC had finished its investigation.

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By sending Herbalife stock dramatically lower at the end of the year, Ackman could goose his annual performance numbers. On December 29, 2012, Chapman put out a public letter that read, “Herbalife: Why I Made It a 35% Position after the Bill Ackman Bear Raid.”27 Chapman called Ackman’s public short a “circus show” and said he was likely to suffer a short squeeze—a quick jump in a stock price driven by others buying the stock, thus sucking shares out of the marketplace. Ackman had already taken away 20 percent, and if other investors took the other side en masse, he could be forced to “cover his short” (buy the stock), driving up the price at a potentially massive loss.

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And when it comes to friends, he called me and said, hey, we were friends, we could make a lot of money investing together. And I knew that even if I was a friend I would never invest with this guy. Because I tell you, the guy takes inordinate risks.” Icahn continued, “He goes short 20 percent of a company. Goes out there, and I will tell you this could be the mother of all short squeezes. I’m going to tell you this. That one day if somebody tenders for this company and wants all their stock back, what’s Ackman going to do? History repeats itself. He’ll be back where he was in 2003 with all the guys redeeming and where is he going to get the money in the stock for that? You know, as far as I’m concerned the guy is a major loser.”

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
by Tim Lee , Jamie Lee and Kevin Coldiron
Published 13 Dec 2019

In a world such as today’s, in which systemic leverage is extreme and the need for liquidity is paramount, the fact that many people and institutions are systematically short volatility does not necessarily mean that long-run returns to selling volatility will be low. It only necessarily means that volatility will be prone to extremely severe short squeezes. Volatility Is the Value of Money The depth of the US markets, and the range of financial instruments available in them, places the S&P 500 at the center of the global carry regime. The Fundamental Nature of the Carry Regime 99 Derivatives and ETFs linked to the S&P 500 are the most liquid venues for equity risk in the world; the S&P 500 is highly correlated with most equity risk trades, and the S&P 500 is the world’s most important benchmark.

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It is possible to imagine that eventually it should describe all financial assets. Does the Carry Regime Have to Exist? 165 Strategies providing liquidity are paid a high return per unit of apparent risk with relatively rare events in which liquidity disappears and liquidity providers are decimated. These events are short squeezes in liquidity. They seem to be inevitable given the nature of the premium—given that short rather than long is the naturally profitable side. They are self-reinforcing deleveraging cascades; their positive feedback nature makes them sudden and catastrophic. Insofar as the underlying asset provides a risk premium either long or short, they must always occur against that underlying premium—cause losses to receivers of the underlying asset premium—as the carry regime causes the underlying risk premium and its liquidity provision premium to become identified with each other.

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Insofar as the underlying asset provides a risk premium either long or short, they must always occur against that underlying premium—cause losses to receivers of the underlying asset premium—as the carry regime causes the underlying risk premium and its liquidity provision premium to become identified with each other. So in equity markets, liquidity short squeezes are to the downside. They form and cause the skew of both implied volatility and realized returns, this skew being another way in which the liquidity price manifests. The high return-to-risk ratio of liquidity provision strategies is the natural complement of and compensation for the violence of the carry crashes in which these strategies are punished.

You've Been Played: How Corporations, Governments, and Schools Use Games to Control Us All
by Adrian Hon
Published 14 Sep 2022

Instead, r/wallstreetbets users came up with dubious but entertaining reasons why GameStop was underpriced (e.g., the new owners might figure out a plan, institutional short sellers like Melvin Capital had unfairly attacked the stock) and schemed to send the price sky-high (“to the Moon”) by buying highly leveraged call options to execute a “short squeeze.” Since r/wallstreetbets had almost two million users by this point, even a small proportion of its users could move the share price if they were sufficiently coordinated—and they did. As the share price rose during January, posters shared screenshots of their winnings, enticing more users to buy options.

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In late 2021, the Securities and Exchange Commission requested information and public comment on the use of gamification on digital finance platforms as a prelude to possible new regulatory action.72 Financial regulators may also eliminate the need for platforms like Robinhood to halt trading in similar circumstances by moving to shorter settlement cycles, thus reducing the amount of cash the company needs on hand for extreme trading events, a change with enormous and unpredictable effects.73 Another consequence is the belated realisation that social media can coordinate disparate individuals into market-shaking actions. One of the witnesses who testified at the US House Financial Services Committee’s hearing in February was the r/wallstreetbets user most responsible for driving the GameStop short squeeze, Keith Gill (a.k.a. Roaring Kitty on Twitter and YouTube). Gill, a financial analyst, denied any improper or illegal activity such as deliberately encouraging people to buy the stock for his own gain, arguing he had simply provided sober financial advice: “Hedge funds and other Wall Street firms have teams of analysts working together to compile research and critique investment ideas, while individual investors have not had that advantage.

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Social media platforms like YouTube, Twitter, and WallStreetBets on Reddit are leveling the playing field. In a year of quarantines and COVID, engaging with other investors on social media was a safe way to socialize. We had fun.”74 Gill wasn’t interested in whether Robinhood was gamified. The GameStop short squeeze could have happened without Robinhood, but it couldn’t have happened without social media—and it was the gamification of social media that focused attention so acutely on the GameStop trade. It’s not odd or even necessarily harmful for people brought up with games to think of the world as a game and themselves as players.

Faster, Higher, Farther: How One of the World's Largest Automakers Committed a Massive and Stunning Fraud
by Jack Ewing
Published 22 May 2017

If Porsche had locked up more than 74 percent of VW’s voting shares, and the state of Lower Saxony owned another 20 percent, less than 6 percent was still available on the market. Now the hedge funds were the ones with a big problem. They suddenly needed to settle their short-sale bets, which required them to own Volkswagen shares. The Porsche statement left them with the impression that not enough were available to buy. It was a classic “short squeeze”—one of the largest in financial market history. On Tuesday, two days after the Porsche statement, Volkswagen’s share price topped €1,000 ($1,400) as the panicked short sellers scrambled to buy at any price. For a few hours, Volkswagen passed Exxon Mobil as the world’s most valuable company. But was there really a shortage of Volkswagen shares?

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Investors that suffered losses included Parkcentral Global Hub Holding, which was controlled by the Perot family in Texas and later went out of business for reasons not directly related to Volkswagen, and Greenlight Capital, whose president is David Einhorn, a well-known New York investor. Another of the short sellers was Adolf Merckle, a German billionaire who made a fortune in generic drugs and had been number 94 in Forbes magazine’s ranking of the 400 richest people in the world. In January 2009, about two months after the short squeeze, Merckle was found lying in blood-spattered snow next to railroad tracks in Blaubeuren, a village in Baden-Württemburg. Despite his wealth, Merckle and his wife and children had lived in the village in a single-family home with his name on the mailbox. Merckle had stepped in front of an oncoming train.

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More than seventy years after Hitler had dedicated the Volkswagenwerk, it belonged to the descendants of the man who had created it. It was one of the most spectacular financial maneuvers ever. Needless to say, not everyone was happy with the outcome. More than thirty hedge funds that had been burned by the short squeeze sued in U.S. courts. But a federal appeals court ruled that the U.S. courts had no jurisdiction, in part because Porsche and Volkswagen shares were not listed on U.S. stock exchanges. (Some funds also sued in Germany. The cases were still pending as of late 2016.) To be sure, it was hard to shed many tears for the hedge funds.

The Quants
by Scott Patterson
Published 2 Feb 2010

You’re on the hook for those shares, and every dollar it goes up is a $100 loss. To minimize your losses, you buy the stock back. That can have the effect of pushing the stock even higher. If hundreds or thousands of short sellers are doing this at once, it turns into what’s known as a short squeeze. That Monday, August 6, was beginning to look like possibly the biggest short squeeze in history. “Has the feel of a big gorilla getting out of a lot of positions, fast,” Benson added. “Anything we can do about it?” “Keep an eye on it. I doubt this will last much longer. The rate this guy is unwinding his trades, it can’t go on for long.

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Online retailer Overstock.com; Taser International, maker of stun guns; the home building giant Beazer Homes USA; and Krispy Kreme Doughnuts—all favorites among short sellers—rose sharply even as the rest of the market tanked. From a fundamentals perspective, it made no sense. In an economic downturn, risky stocks such as Taser and Krispy Kreme would surely suffer. Beazer was obviously on the ropes due to the housing downturn. But a vicious marketwide short squeeze was causing the stocks to surge. The huge gains in those shorted stocks created an optical illusion: the market seemed to be rising, even as its pillars were crumbling beneath it. Asness’s beloved value stocks were spiraling lower. Stocks with low price-to-book ratios such as Walt Disney and Alcoa were getting hammered.

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Citadel, it turned out, had short positions in some of those companies as part of its convertible bond arbitrage strategy. Just as Ed Thorp had done in the 1960s, Citadel would buy corporate bonds and hedge the position by shorting the stock. With the short-selling ban, those shares surged dramatically in a vicious short squeeze that inflicted huge losses on hedge funds. Shares of Morgan Stanley, a bank squarely in the short sellers’ crosshairs, surged more than 100 percent in a matter of days from about $9 to $21 in early October when the ban was in place. Before the ban took effect, Griffin got SEC chairman Christopher Cox on the phone.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

If the short seller does not send back the share that has been recalled, the lender can enforce a “buy in” by buying the share itself using the cash collateral. When short sellers are forced to close their short positions, they are forced to buy the share back and, when many short sellers do this simultaneously, the stock price can be driven up—a “short squeeze.” A short squeeze feeds on itself: As the buying drives the price up, more short sellers may be forced to close their positions as they cannot make their margin calls, leading to further buying, higher prices, and more margin calls. There are two reasons why short sellers face margin calls when stock prices rise.

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The price series and cumulative returns have been normalized to be 100 at the beginning of July. Source: Pedersen (2009). Predatory trading can arise in many different ways. For instance, it can arise when some traders use mechanical trading rules such as stop-loss orders, or during a so-called short squeeze. Prime brokers know a lot about a hedge fund’s positions and funding situation and have sometimes been accused of exploiting this information: If lenders know that a hedge fund needs to sell something quickly, they will sell the same asset—driving the price down even faster. Goldman, Sachs & Co. and other counterparties to LTCM did exactly that in 1998.

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See also dividends Sharpe ratio (SR), 29, 30–31; annualizing, 34; of betting against beta portfolios, 141–42, 142f, 143f, 144; of carry trades, 188, 188t; of global value and momentum trades, 198, 198f; of high-minus-low (HML) factor, 137; in low-risk investing, 141, 142, 142f, 143f; of managed futures funds and indices, 221, 222t; market timing strategy and, 175; of merger arbitrage, 305; portfolio risk and, 171; rebalancing a portfolio according to, 48; of security selection strategy, 52–53; of short-term bonds, 249n; Sortino ratio compared to, 32; time horizon and, 33, 33t, 34; of time series momentum strategies, 209, 214, 214–17f, 218, 218t, 219, 223, 224; of Warren Buffett, 104–5, 160 Shiller, Robert, 3, 179 shocks: to capital flows and trade flows, 199; Scholes on, 268; supply and demand, 5, 194–96, 195f, 195t short-selling: Ainslie on, 109–10; banned for financial stocks during some crises, 117, 123–24; basic concept of, 10; benefits of, 123–24; in convertible bond arbitrage, 270, 277, 283; creating a catalyst for, 106; criticisms of, 26, 122–24, 131–32; in fixed-income arbitrage, 241, 250–55, 260; frictions associated with, 119–21; management actions to discourage, 122; of options, 239–40; overvaluation of stocks and, 119–21; overview of, 116–18; in quality investing versus value investing, 139; of stocks “on special,” 277. See also dedicated short bias hedge funds short squeeze, 118; predatory trading and, 84 Siamese twin stocks, 6, 149–50, 149f side pockets, 75 size risk, 29 Skilling, Jeff, 127 small-minus-big (SMB) factor, 29 smile, of time series momentum, 220–21, 220f smirk, of implied volatility, 239 SML (security market line), 140–41, 140f, 141n SoftBank, 318, 319 Soros, George, viii, 1, 11, 13, 15–16, 15t; famous trade by, shorting the pound, viii, 1, 187, 204, 320; on going for the jugular, 11–12, 321; Internet bubble and, 41, 203, 206; interview with, 204–7; Paulson’s learning from, 206, 320, 321; Scholes on, 264; theory developed by, 15t, 200–204 Soros Fund Management, 204 Sortino ratio, 32 sovereign bonds, 260 sovereign credit risk, 200 sovereign wealth funds, 96, 167 specialness, 245–46, 245f special purpose acquisition companies (SPACs), 313 special security structures, 313 spin-offs, 14, 291, 307–9, 308f; Paulson on, 314, 316 split-offs, 14, 307–9, 308f spreads: widening during periods of stress, 267–68.

The Little Book of Hedge Funds
by Anthony Scaramucci
Published 30 Apr 2012

Step 5: The manager pockets the profit, less the loan amount paid for the “borrow.” If the manager is incorrect and the stock rallies at some point, he will have to buy it back and he still pays the borrowing fee and loses money on the reversal. A massive buying panic is sometimes known as a “short squeeze.” This occurs when there is positive news on a name that lots of hedgies are shorting; many of them will step into the market and buy the stock to effectively get out of the way. How does this practice compare to the conventional mutual fund operating principles? Let’s compare, shall we? Imagine you are the Warren Buffett of stock picking—you are extremely gifted at selecting the best stocks and have a keen understanding of market conditions.

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The individual shorts based on deteriorating fundamentals actually generate better and more meaningful alpha. 2. Nerves of steel. As short trades are often crowded and fairly illiquid, it is difficult for the manager to stay in the short if others are spooked and start a buying panic or a classic short squeeze. 3. Coincidence. The stock price has to coincide successfully with his assessment of the fundamentals. In other words, the market has to move with his analysis. 4. Timing. As the manager is paying interest on the short, the period of depreciation must be closely monitored. Contrarily, if the stock shoots to the moon and widely trades up, the manager may not be able to post an adequate amount of capital to stay in the short.

Why I Left Goldman Sachs: A Wall Street Story
by Greg Smith
Published 21 Oct 2012

Series 7: The six-hour mind-numbing exam that every new college graduate has to pass before he or she can legally talk to clients and execute trades. Shit show: Wall Street slang for a complete fucking nightmare; chaos. Usage: “The market’s tanking, every client phone line is ringing, there are trade tickets all over the place. This is a shit show.” Short squeeze: What occurs when a lot of people are short a security and suddenly everyone starts buying. A short squeeze can cause a lot of pain and trading losses. Smart money: Slang for hedge funds or other savvy investors. Sovereign wealth fund: A government-owned investment fund that invests in stocks, bonds, commodities, real estate, private equity, and hedge funds.

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Having the right investing thesis is only half the battle; knowing when to put the idea into practice is arguably more important. And the beauty part was, the more Wise Clients Goldman could line up behind the short, the more long-dated volatility would go down. But the strategy backfired significantly in the summer of 2010, when there was a huge short squeeze—a lot of people got wind of these positions and all started buying at the same time. On Goldman’s second quarter earnings call on July 20, 2010, CFO David Viniar would offer a mea culpa: “As a result of meeting franchise client and broader market needs, we had a short equity volatility position going into the quarter.

Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud
by Ben McKenzie and Jacob Silverman
Published 17 Jul 2023

During the summer and fall of 2022, as some investors shorted the price of CEL tokens—seemingly not a bad bet when it came to a bankrupt company—others pushed back. Adopting a “short squeeze” strategy, some Celsius influencers and community members encouraged victimized investors to fight back against industry heavyweights and Celsius itself by buying more CEL tokens, thereby pushing up the price and causing losses for the short sellers. Some investors claimed that the short squeeze plan was being pushed by big CEL holders looking to dump their own tokens on the community. These warnings were generally ignored. Like doomed soldiers charging at the Somme, there were periodic short squeeze pushes that led nowhere—except to more losses and charges of market manipulation.

Big Mistakes: The Best Investors and Their Worst Investments
by Michael Batnick
Published 21 May 2018

It's impossible to know for sure whether Loeb and Icahn actually thought Herbalife was a good business and its stock was undervalued. In fact, that part was sort of irrelevant. What mattered was that Bill Ackman, by publicly acknowledging that he would go to the end of the world with this thing, just put a big, fat bull's‐eye on his back. Just the idea that Ackman could be squeezed was enough to send the stock higher. A short squeeze is when a stock that someone has borrowed through a short sale, is forced to cover as the price rises dramatically against them. This is one of the dangerous things about shorting a stock; technically the upside is unlimited. Herbalife hit a low of $24.24 in a few days after Ackman's first presentation and hasn't been below there since.

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., founding, 132 Paulson, John, 3, 129, 131–132 merger/arbitrage, 133 Pearson, Mike, 113 Buffett, contrast, 114 Pellegrini, Paolo, 132–133 Penn Dixie Cement, shares (purchase), 58 Pershing Square Capital Management, 89 Pittsburgh National Bank, 101 Plasmon (Twain investment), 28 Polaroid, trading level, 70 Poppe, David, 114 Portfolio turnover, 69 Portugal, Ireland, Italy, Greece, Spain (PIIGS), 158 Post‐go‐go years meltdown, 147 Post III, William, 131 Price, Teddy, 19–20 Princeton University, 47–48 Private/public investing, history, 149 Profit sharing, 68 Prospect Theory (Kahneman/Tversky), 126 Pyramid schemes, 93 Qualcomm, gains, 57 Quantitative easing program, 134–135 Quantum Fund, 100, 103 Ramirez, Alberto/Rosa, 132 Rational thinking, suspension, 27 Recession, odds (calculation), 38 Renaissance Technologies, 135 Return on equity, term (usage), 4 Reverse crash, 100 Risk, arrival, 32 Risk management, 23 Roaring Twenties, bull market cycle, 7 Robertson, Julian, 58 Roche, Cullen, 99 Rockefeller, John, 30 Rogers, Henry (“Hell Hound”), 30–32 Rooney, Frank, 80, 81 Rosenfeld, Eric, 39, 41 Ruane, Bill, 4, 109, 112 Ruane & Cunniff, 112 Ruane, Cunniff & Goldfarb, 110–111 Russell 3000, 135 Russia, Quantum Fund loss, 103–104 Sacca, Chris, 145, 149–150 Salomon Brothers, 39 Buffett investment, 79 Samuelson, Paul (remarks), 51 San Francisco Call, 31 Schloss, Walter, 4 Schmidt, Eric, 150 Scholes, Myron, 39 Nobel Prize in Economics, 40–41 Schroeder, Alice, 80 Schwager, Jack, 159 Sears, Ackman targeting, 90 Sears Holdings, 109 Securities and Exchange Act, 7 Securities and Exchange Commission (SEC) 13D registration, 90 creation, 22 Security Analysis (Graham), 3–5 See's Candy Berkshire Hathaway purchase, 78 purchase, 142 Self‐esteem, satisfaction (impact), 75–76 Sequoia Fund, 107 operation, 110–111 Shiller, Robert, 75–76, 87 Short squeeze, 93 Silvan, Jon, 94 Simmons, Bill, 151 Simons, Jim, 135 Slack, Sacca investment, 149 Smith, Adam, 68, 121 Snapchat, 151 Snap, going public, 151 Snowball, The, (Schroeder), 80 Social activities, engagement, 87–88 Soros Fund Management, losses, 105 Soros, George, 58, 60, 100, 103 interaction, 102 reform, 121 South Sea Company shares, 37 Speculation, 15 avoidance, 28 SPY, 62 Stagecoach Corporate Stock Fund, 52 Stamp revenues, trading, 141–142 Standard Oil, 30 Standard & Poor's 500 (S&P500) ETF, 62 gains, 112, 114 performance, comparison, 119 shorting, 163 Valeant performance, comparison, 113 Steinhardt, Fine, Berkowitz & Company, opening, 58 Steinhardt, Michael, 55, 58 performance record, 59–60 Steinhardt Overseas Fund, 60 Stoker, Bram, 30 Stock market, choices, 114–115 Stocks crashing/reverse crashing, 100 return, 99 stock‐picking ability, 88 Stock trader, training, 18 Strategic Aggressive Investing Fund, 102 Sunk cost, 110 Sun Valley Conference, 57 “Superinvestors of Graham‐and‐Doddsville, The,” 111–112 Taleb, Nassim, 42 Target, Ackman targeting, 90 TDP&L, 50 Tech bubble, inflation, 57 Technivest, 50 Thaler, Richard H., 75, 126 Thinking, Fast and Slow, (Kahneman), 15 Thorndike, Dorain, Paine & Lewis, Inc., 48 Time horizons, 120 Time Warner, AOL merger, 49 Tim Ferriss Show, The, (podcast), 150 Tim Hortons, spinoff, 89 Tract on Monetary Reform, A, (Keynes), 125–126 Trader (Jones), 119 Trustees Equity Fund, decline, 50 Tsai, Jerry, 65, 68 stocks, trading, 69 ten good games, 71 Tsai Management Research, sale, 70 Tversky, Amos, 81 Twain, Mark (Samuel Clemens), 25, 27, 75 bankruptcy filings, 32 money, losses, 27–32 public opinion, hypersensitivity, 31 Twilio, Sacca investment, 149 Twitter, Sacca investment, 149–150 Uber, Sacca investment, 149 Undervalued issues, selection, 10 Union Pacific, shares (sale), 18 United Copper, cornering, 19 United States housing bubble, 132 University Computing, trading level, 70 US bonds international bonds, spreads, 41 value, decline, 61 U.S. housing bubble, impact, 132 U.S.

The Great Race: The Global Quest for the Car of the Future
by Levi Tillemann
Published 20 Jan 2015

Those holding Tesla didn’t want to sell, but those shorting Tesla—which accounted for about 40 percent of the company’s outstanding float—simply had to buy to cover their positions. It was a “short squeeze.” Prices marched higher and higher. From $37 at the beginning of April, past $40, then $50. By mid-May, Tesla shares were flirting with $90, and by June they had blasted past $100. And even as the short squeeze subsided, Tesla’s stock continued to soar. Its dramatic rise brought the company new prominence and notoriety in the world of fund managers and day traders. Its shares continued to scream north toward $200.

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Protesters destroyed Japanese cars on the streets, and in the ensuing months Japanese auto sales dropped an estimated 40 to 50 percent. 49 50 In May 2012, Elon Musk’s SpaceX capsule successfully docked with the International Space Station. Tesla’s stock was also skyrocketing. When Tesla beat analysts’ expectations for sales, it triggered a “short squeeze.” Stock prices soared higher and higher. From $37 at the beginning of April, past $40, then $50. By mid-May, Tesla shares were flirting with $90. By summer 2014, it shares were trading above $250. 51 In September 2014, America’s most successful EV manufacturer announced plans to build a massive battery factory in the United States that would import significant swaths of technology from the Japanese company Panasonic.

Buy Now, Pay Later: The Extraordinary Story of Afterpay
by Jonathan Shapiro and James Eyers
Published 2 Aug 2021

If a hedge fund had shorted Afterpay shares in May, they would have lost twice their initial investment. ‘If you have a company that continues to announce positive news, as Afterpay has done with the pace of their growth in the US continuing to surprise, you have the ingredients for a classic short squeeze,’ Darren Letts, a dealer at wealth manager Mason Stevens, told the firm’s clients in a morning update. A short squeeze occurs when a share price rises sharply, forcing those who have borrowed shares to buy them back in a hurry. As they rush to buy, the share price rises further, aggravating their losses. When the short position is crowded and speculators are desperate to get out, the situation can get ugly.

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‘So that’s where we should all be looking. Don’t underestimate their power.’ • • • That power was on full display the time of the Thread Together event. That same week, a stock-market episode of epic proportions was captivating the world’s attention as traders had gathered online and orchestrated a short squeeze in struggling video-game retailer GameStop. GameStop, which sold everything from Monopoly to the latest video consoles, had over 5000 stores across the United States. But the business was in decline as a new generation of gamers simply downloaded releases over the internet instead of buying them in boxes at its physical locations.

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader
by Colin Lancaster
Published 3 May 2021

We are screaming at Elias to follow the market up. This is a complete whipsaw, and we need to keep the book balanced. The markets rocket higher by more than 7% in just the final eight minutes of trading. It was one of the greatest face-ripping short squeezes of all time. In times like these, the government becomes dangerous. It will orchestrate these short squeezes, or worse yet, just change the rules of the game. This is when it goes into high gear in terms of market manipulation. Even with the gains, however, global stock markets have lost $4 trillion in market cap this week. It’s one of the worst on record.

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

Between September 22 and September 30, the price rose from approximately 1 dollar to 2 dollars. Traders who were caught short suffered tremendous losses. Hutchinson ultimately specified the prices at which he released them. He made millions of dollars from this corner. ◀ * * * * * * * * * ▶ A Short Squeeze in a Penny Stock Fraud XYZ is a thinly traded, low-priced stock with a small float. The float of a stock consists of those shares which the public can trade. A stock has a small float when management controls most of the shares outstanding or when legal restrictions prevent trading of most outstanding shares.

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Other traders who lent Ian shares also demand that he return the shares so they can sell them to the promoters. Ian tries to borrow the shares from someone else, but none are available. He therefore must purchase the stock on the open market. Ian ends up buying the stock at a high price from the squeezers. Although Ian was right about XYZ being overpriced, he still lost much money in this short squeeze. ◀ * * * The largest and most notorious squeezes have occurred in commodity futures markets. Smaller squeezes occasionally take place in thinly traded stocks. Squeezes are now illegal in United States. In the futures markets, the Commodity Futures Trading Commission carefully monitors trading and open interests as contracts expire.

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• What effect does quote matching have on market liquidity? • Should exchanges try to discourage quote matching? • What is the relation between value traders and sentiment-oriented technical traders? • What is the relation between information-oriented technical traders and sentiment-oriented technical traders? • Short squeezes occur when traders with short positions are squeezed. Can traders with long positions also be squeezed? • What type of order anticipator is a trader who guns the market to exploit stop orders? 12 Bluffers and Market Manipulation Bluffers are profit-motivated traders who try to fool other traders into trading unwisely.

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff
by Christine S. Richard
Published 26 Apr 2010

“We reiterate our ‘buy’ rating,” Bank of America analyst Tamara Kravec wrote, increasing her target for the share price to $85 from $78. “Let the Repurchases Begin,” Merrill Lynch analyst Rob Ryan headlined his report. With the investigation behind it, MBIA was clear to restart its stock buyback program, Ryan wrote. He reiterated his “buy” rating. “Settlement Finally Announced, Shares Benefiting from Short Squeeze,” JP Morgan told clients in a research note. “Shares have rallied about $4 since late Friday following the news alerts, which we believe has largely been driven by short covering.” The negative overhang had been removed from the stock, the report added. During a conference call to discuss fourth-quarter earnings, MBIA chief financial adviser Chuck Chaplin explained that MBIA’s dealings with Capital Asset would be reviewed by an independent consultant as part of the settlement with regulators.

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United States District Court, Southern District of New York, Jan. 29, 2007. Tamara Kravec, “MBIA Inc.: Settlement Overhang Removed; Room for More Multiple Expansion,” Bank of America, Jan. 29, 2007. Robert Ryan, “MBIA: Let the Repurchases Begin,” Merrill Lynch, Jan. 29, 2007. Andrew Wessell, “MBIA Inc.: Settlement Finally Announced, Shares Benefiting from Short Squeeze,” JPMorgan, North American Equity Research, Jan. 29, 2007. MBIA fourth quarter 2006 earnings conference call, Bloomberg transcript, Jan. 30, 2007. “MBIA Announces $1 Billion Share Repurchase Authorization,” MBIA press release via Business Wire, Feb. 1, 2007. Christine Richard, “MBIA Used Short Seller’s Report to Help Get Lawsuit Dismissed,” Bloomberg News, Feb. 22, 2007.

Stock Market Wizards: Interviews With America's Top Stock Traders
by Jack D. Schwager
Published 1 Jan 2001

The very fact that one could make an appointment without any waiting told me that something was wrong. Only one clinic—and you could get an appointment right away—and the market is valuing the stock at over $1 billion! It was absurd. We sold the stock at around $31 to $32. After I got short, I didn't like the price action, and I was concerned about a short squeeze. I ended up covering the position at around $35 to $36. The stock eventually collapsed to $1. I had it nailed. I was dead right in my analysis, but let's be honest, I chickened out. On the long side, you only buy stocks that your analysis tells you have very limited risk. On the short side, you will stop yourself out before a stock goes very far against you.

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WIZARD LESSONS Finally, with the exception of index products, the system is stacked against short selling. The short seller has to borrow the stock to sell it, an action that introduces the risk of the borrowed stock being called in at a future date, forcing the trader to cover (buy in) the position. Frequently, deliberate attempts to force shorts to cover their positions (short squeezes) can cause overvalued, and even worthless, stocks to rally sharply before collapsing. Thus, the short seller faces the real risk of being right on the trade and still losing money because of an artificially forced liquidation. Another obstacle faced by shorts is that positions can be implemented only on an uptick (when the stock trades up from its last sale price)—a rule that can cause a trade to be executed at a much worse price that the prevailing market price when the order was entered. 59.

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing
by Vijay Singal
Published 15 Jun 2004

Loaned shares are “on call,” meaning that the shares borrowed by S’s broker must be returned anytime the lending firm or lending account needs them. When the shares are “called,” S’s broker can try to borrow shares from someone else, or may force S to buy shares from the market so that the shares can be returned. If many short sellers are forced to buy shares at the same time, then it results in a “short squeeze,” with the price rising very quickly. This forces the short sellers to cover their positions, which causes the price to rise further, accentuating the loss in a short sale. Further, conditions relating to borrowed shares change on a daily basis: the shares may be put on “special,” meaning that the short seller has to pay greater compensation to the lender, and the collateral is revised daily to ensure that the lender holds at least 102 percent of the value of shares lent.

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See also Nasdaq 100 Index; Standard and Poor’s (S&P) indexes; Wilshire index Rydex Funds Dynamic funds, 317n6 industry momentum and, 85, 86, 93–98, 96, 100 Mekros Fund, 51 Sector Rotation Fund, 99 Standard and Poor’s 500 index compared to, 97 transactions costs, 95 Ursa, 129 Sabre Holdings, 201–2, 204 sampling bias, 11, 12 SAS software, 133n6 Saturday trading, 46 Sauter, Gus, ix Scholes, Myron, 22n3 Scottrade, 115 Scudder Investments, 252 SDC Mergers and Acquisitions database, 219 seasoned issues, 305, 312, 317n1 sector funds, 85, 86, 89, 98–99, 100 Securities and Exchange Act (1924), 46 Securities and Exchange Commission (SEC) American depository receipts (ADRs) and, 250– 51 insider trades and, 135, 142, 149 Internet resources, 160 merger arbitrage and, 197 Ownership Reporting System, 138 reporting requirements, 134, 136, 146–47, 149 345 346 Index selection bias, 12 self-attribution, 286 Seyhun, Nejat, 147 share repurchases, 136, 309–10, 317n4 Sharpe, William, 8 Sharpe ratios forward rate bias strategies, 276, 279 in forward rate bias strategies, 265 industry momentum and, 81–82, 92, 100, 103n2 Shleifer, Andrei, 22n3 short selling described, xi, xiv, 323–27 difficulties, 5 exchange-traded funds, 322 futures, 110 hedged short sales, 326 hedging, 49, 185 history, 46 industry momentum and, 79, 80 insider trading, 136, 157 merger arbitrage, 199, 202, 217–18, 225–26, 231n3 mutual fund mispricings, 127, 131 price drift, 65, 69, 71–73 process described, 323–26 restrictions on, 16, 317n7, 326 returns and, 302 risks, 5–6, 200 short interest of companies, 45, 48, 49, 52, 54 short squeeze, 325 shorting against the box, 44 speculative short sellers, 327 Standard and Poor’s (S&P) 500 index changes, 163, 180, 182–84, 185–90, 192 stock mergers, 222 unhedged, 44 weekend effect, 40, 43, 44–45 short-term price drift. See price drift, short-term short-term redemption fees. See loads and fees Simon, Herbert, 291 Sinquefield, Rex, 22n3 small capitalization stocks index changes and, 164 insider trading, 145 January effect, 33 mutual funds and, 33, 104, 112, 116 options, 319–20 profit potential, 16 rates of return and, 12, 13 small loser firms, 25, 26, 26, 26–27 small sample problem, 12, 267– 68.

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
by Satyajit Das
Published 15 Nov 2006

The long and the short of it was that WTI price fell and we lost money on the futures position. We should have made an equal but offsetting gain on the jet fuel, the only problem being that fuel had fallen but not nearly as much as WTI. It was due to technical factors; when you lose money on a trade it is always due to technical factors. There was a short squeeze in the jet fuel market, a shortage of refining capacity or some such nonsense. I was the squeezee. We lost some money – not much. My already precarious reputation for derivative expertise slipped further in the eyes of my boss. He muttered darkly about how every hedge seemed to end up losing money.

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For example, pre-1997, CDS on the Republic of Korea frequently used a Korean Development Bank bond maturing in 2007 as the deliverable bond. Unfortunately, traders can’t add up. The volume of CDS on Korea exceeded the outstanding volume of the bonds by about six to eight times. There was the mother of all short squeezes in the KDB bonds. Buyers of protection feverishly outbid each other to secure the bonds for delivery into CDS to lock in their gains. The price of the KDB bonds actually rose during the Korean crisis. The wise men of the market solved the problem by creating a delivery ‘basket’. Any loan or bond that fitted certain criteria could be delivered.

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle
by Diana B. Henriques
Published 1 Aug 2011

But without an assured supply of stock to cover the borrowed shares, the risks were even higher. A short-seller might find that there simply are no shares to be had except at an astronomical price—a ruinous situation known as a short squeeze. Another form of short-selling Madoff said he frequently employed was “shorting against the box.” In this strategy, a trader shorts the shares of a stock he himself already owns. His holdings protect him against a short squeeze if the price goes up; if the price goes down, his short sale locks in his accrued profits without his actually having to sell the shares, which could have tax consequences. Legislation later reduced the tax benefits of this strategy. 30 His grandparents on both sides: The most extensive research into Madoff’s genealogy is included in Arvedlund, Too Good to Be True, pp. 14–15.

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return
by Mihir Desai
Published 22 May 2017

As a thirteen-year-old, Cowperwood walks by an auction, buys seven cases of soap for $32 with money he doesn’t have (but secures ultimately with a loan from his father), and walks to the family grocer and sells them to him for a note worth $62. He then uses that note to pay back his father. Having risked zero and made $30 in one day with leverage, he’s hooked. Cowperwood’s bets become larger and larger, and he wins and loses fortunes several times over, some of them illegally. He gets caught in a “short squeeze,” misuses public funds, goes to jail, and then makes it all back again. Stories of his insatiable appetite for money are interwoven with stories of his sexual appetites, tales of adultery, and his acquisitiveness for art. Dreiser completed the Cowperwood story in three novels, christened, in case there was any confusion, as The Trilogy of Desire.

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence
by Jerry Kaplan
Published 3 Aug 2015

Let’s hope she doesn’t read the personal portions of this manuscript until it’s too late to make changes. Oops, forgot to mention the kids—Chelsea, Jordan, Lily, and Cami—hi, guys, guess what? I finished the book! Notes INTRODUCTION 1. Jaron Lanier, Who Owns the Future? (New York: Simon and Schuster, 2013). 2. For instance, they may execute a “short squeeze” by bidding up a stock that investors have sold short, forcing them to close out their positions at ever-higher prices to contain their losses. 3. Marshall Brain, Manna (BYG, 2012). 4. Erik Brynjolfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (New York: Norton, 2014). 1.

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

The Fed is also responsible for supervising the government securities custodial operations at hundreds of institutions that hold government securities for customers but do not engage in broker-dealer activities in government securities. Short Squeezes of 1991 Prompt Reforms Additional reforms of the government securities market were prompted following investigations by the SEC and the Antitrust Division of the Department of Justice into apparent short squeezes that occurred following the April and May 1991 auctions of Treasury notes. Salomon Brothers admitted in August 1991 to having submitted unauthorized customer bids at several auctions in 1990 and 1991 and to failing to report large net long positions on auction tender forms as required. As a result of its actions, short squeezes developed in the 2-year Treasury note, with its repo rate on special and, hence, substantially below the repo rate on other Treasury securities.

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The 1986 act was precipitated by the bankruptcies of a number of smaller dealers that cost investors hundreds of millions of dollars principally as a result of the failed dealers’ misdeeds. Amendments to the act were enacted by Congress in 1993 following investigations by the Securities and Exchange Commission (SEC) and the Antitrust Division of the Department of Justice regarding apparent “short squeezes” that occurred after the April and May 1991 auctions of 2-year Treasury notes. Dealer Safekeeping of Repo Collateral At the end of the 1970s and in the early 1980s, there were numerous dealer failures, which resulted in large losses for investors doing repo and reverses. These losses were unnecessary and resulted almost entirely for two reasons: the switch to sloppy pricing of collateral and the failure of investors in repo to take delivery of collateral.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

Hedge funds betting on VW’s share price falling lost €10–15 billion. Unable to hedge their exposure under the options and exposed to hedge funds that they financed or traded with, banks also took losses. Like their precise handling cars, Porsche had cornered the market perfectly. The hedge funds had been caught in a classic short squeeze. Analysts questioned whether Porsche made cars or was a hedge fund with a few car plants. The company explained the difference: “We make money from hedging and building cars. The difference is that hedge funds don’t make cars the last time I checked.”22 Fast Cornering Hedge funds complained that Porsche manipulated the market in VW shares, taking advantage of inside information to profit at the hedge fund’s expense.

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Porsche’s financial statements disclosed its option trading. On October 8, 2008, a Morgan Stanley analyst, Adam Jonas, warned against playing “billionaire’s poker,” drawing attention to the size of the short position on VW relative to the free float. Earlier, on February 27, 2008, JP Morgan identified the risk of a short squeeze, predicting that Porsche would continue to increase its stake in VW.23 Porsche made disclosures, giving investors who short sold VW the opportunity to manage their positions and risks. When their arguments did not gain traction, hedge funds argued that the trades, while legal, were not within the spirit of the law.

Rigged Money: Beating Wall Street at Its Own Game
by Lee Munson
Published 6 Dec 2011

In a nutshell, a guy named Otto Heinze thought he could manipulate the price of United Copper Company, owned by his family. This particular stunt was called a corner, meaning Otto wanted to buy up all of the shares and force anybody who was short the stock to panic and have to buy back shares. The dreaded short squeeze would enrich Otto and his buddies. It didn’t work, Otto failed miserably, and the shares of United Copper Company plummeted. This would not be a big deal if Otto had lost his own money, but his ties with banks around New York created a classic case of guilt by association. Anything Otto or his friends or family were involved in got hammered.

Alone on the Wall: Alex Honnold and the Ultimate Limits of Adventure
by Alex Honnold and David Roberts
Published 2 Nov 2015

But once it narrowed, I found myself inching along, facing out with my body glued to the wall, shuffling my feet and maintaining perfect posture. I could have looked down and seen my pack sitting at the base of the route 1,800 feet below, but it would have pitched me headfirst off the wall. The ledge ends at a short squeeze chimney that guards the beginning of the final slab to the summit. I paused for a moment beneath the ninety-foot slab, looked up to see if anyone was watching (still no one), and started up. The first few moves are easy enough, on somewhat positive holds with good feet. As you get higher, the holds disappear and the feet shrink.

Dead Companies Walking
by Scott Fearon
Published 10 Nov 2014

So-called momentum investors will seek out stocks at or near their 52-week highs that also have a good number of short investors. They’ll bid the price up even more, hoping to scare short-sellers into exiting their positions en masse, which serves to inflate the stock even further. It’s called a short squeeze, and it’s a brutal thing to live through when you’re on the receiving end. By waiting until a stock has already shed more than half its peak value, I may sacrifice some potential gains, but I make more over the long run by avoiding these sorts of risks. Notes *Penni Crabtree, “Feds Accuse Ex-AMS Exec of Fraud Role,” San Diego Union Tribune, March 3, 2005.

Reminiscences of a Stock Operator
by Edwin Lefèvre and William J. O'Neil
Published 14 May 1923

As late as August, shareholders were worried about where Heinze was getting the money for United’s generous dividend payments.21 The Standard Oil crowd was watching, waiting for Heinze to overstep so they could exact their revenge. They got their chance on October 14, 1907, when United Copper went from $37.50 to $60 while all other important mining stocks declined. The next morning, the New York Times reported a “Skyrocket Jump” as the stock blasted higher in the first 15 minutes of trading.22 Heinze had started his short squeeze believing he controlled enough of the shares to effectively corner it. He did not. The next morning shares collapsed to $38 as other shareholders—who likely included H. H. Rogers and William Rockefeller—sold into the rise and supplied short sellers with the stock certificates they needed to repay their loans.

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After coming to the assistance of his old friend Henry Keep, who was loaded down with a long position and needed $2 million, Drew distanced himself from the scheme while privately continuing to sell Erie short. Fisk, who had a gift for colorful epithets, called the old man “Turn Tail” and “Danny Cold Feet.” Drew, who was not warned when Fisk and Gould turned bullish, was caught in the fangs of a short squeeze. Not only did Fisk and Gould start buying Erie, but they unleashed their hoard of greenbacks. Stocks boiled higher. When Drew went to see his compatriots to ask for more time to deliver his shares, he was laughed at and told that “he was the last man who ought to whine over any position in which he has placed himself in regard to Erie.”57 Drew, it seemed, was beyond rescue.

Ludicrous: The Unvarnished Story of Tesla Motors
by Edward Niedermeyer
Published 14 Sep 2019

Coming on the same day as news of the Saudi PIF taking a 5 percent stake in Tesla, Musk’s tweet gave Tesla’s stock a double pump that inflicted massive losses on the hated shorts. But euphoria about the possibility of a private Tesla, free from the disclosures and controversy that come with being a public company, soon turned to doubt as hard details of the deal failed to materialize. As confidence crumbled, so too did the chances of a “short squeeze” that Musk had been promising all summer, and Tesla’s share price began to erode as quickly as it had been pumped up. Within a week of Musk’s tweet, the New York Times reported that the Securities and Exchange Commission had subpoenaed Tesla in connection with an investigation into the possibility that Musk’s tweet constituted securities manipulation.

Nothing but Net: 10 Timeless Stock-Picking Lessons From One of Wall Street’s Top Tech Analysts
by Mark Mahaney
Published 9 Nov 2021

During January 2021, shares of GameStop (GME) skyrocketed $1,900% from $17 to $348, before correcting 90% over the next month back down to $41. This was one of the biggest roller-coaster rides I have ever seen, and I have been to more than my share of amusement parks. The GME rally was a dramatic short squeeze featuring Bullish options bets that helped popularize the concept of meme stocks—stocks that are popular with millennial-aged retail traders and move more on hype than on underlying fundamentals. Comments on Reddit’s WallStreetBets forum suggested a lot of momentum day-trading activity with one popular goal being to go Long the most heavily shorted stocks in the market, of which GME was certainly one.

Volt Rush: The Winners and Losers in the Race to Go Green
by Henry Sanderson
Published 12 Sep 2022

Someone was buying up huge stocks of nickel on the LME, pushing up the price. It looked like an attempt to corner the market – a practice that had occurred from time to time but most famously in 1995 when a Japanese trader for Sumitomo, Yasuo Hamanaka, became known as ‘Mr Copper’ for buying up all the copper stocks on the exchange. The tactic, known as a ‘short squeeze’, is intended to give the false impression that demand for the metal is especially strong, prompting others to buy into the rally. It seemed to be happening again in nickel, since the real physical market for the metal was actually very weak, especially in China – but who was the buyer? The purchases were taking place via a US bank, according to the rumours, which pointed to JP Morgan.

Currency Wars: The Making of the Next Gobal Crisis
by James Rickards
Published 10 Nov 2011

I was the only one in the room with a lengthy career on Wall Street that included time at investment banks, hedge funds and exchanges. If we were going to conduct a financial war, we needed people who knew how to use financial weapons—such as front running, inside information, rumors, “painting the tape” with misleading price quotes, short squeezes and the rest of the tricks on which Wall Street thrives. We needed people who, in the immortal words of legendary banker John Gutfreund, were ready “to bite the ass off a bear” when it came to trading currencies, stocks and derivatives. There was no lack of testosterone among the uniformed military or the spies in the room, but they knew no more about destroying a country with credit default swaps than the average stock trader knew about the firing sequence for an ICBM.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

Among other things, hedge fund returns are subject to fat tails or tail risk—higherthan-normal probabilities of extreme negative returns. Hedge funds are short-sellers, and short-sellers take the risk of infinite losses (stocks can fall only to zero but can rise to infinity). They can be caught in what is known as a “short squeeze,” in which they are unable to make delivery of the stock they have sold because they are unable to borrow it anywhere. Then they are forced to go into the market and buy it back at what is likely to be a higher price than the price at which they sold. Many hedge funds own illiquid assets or assets trading only in thin markets, where the probability of large losses is much greater than in conventional investing—as the disastrous experience of Long-Term Capital Management so dramatically demonstrated.* All these activities become even riskier when the fund uses borrowed money, which is frequently the case.9 By definition, most investors cannot outperform the market because they are the market.

Boom and Bust: A Global History of Financial Bubbles
by William Quinn and John D. Turner
Published 5 Aug 2020

If the price had fallen by then, the bears, as short sellers were known, would profit from the difference in price. During the Bicycle Mania, however, directors, promoters and market manipulators found that they could exploit this bear strategy by buying a controlling stake in a company that was sold short – a strategy known as a market corner or short-squeeze. Since bears had entered into a contract to sell the shares, the market manipulator could then name their price. The use of this strategy was rare, occurring only three times during the bubble, but the losses they imposed on short sellers were substantial. During the Bagot Tyre corner, one investor was forced to pay twenty-one times the face value of Bagot shares and subsequently faced a loss of £2,318; executing the strategy successfully would have earned a profit of only £26.

Woke, Inc: Inside Corporate America's Social Justice Scam
by Vivek Ramaswamy
Published 16 Aug 2021

The Reddit crowd realized that if they just bought a ton of GameStop shares, they could drive the price up by so much the short-sellers would be forced to buy shares at the higher price to close their positions (that’s how the mechanics of short-selling work) and would have to pay whatever price the Reddit guys named. That’s called a “short squeeze,” and it worked wonders. GameStop’s share price skyrocketed. Hedge funds bled. The hedge fund Melvin Capital, led by onetime star trader Gabe Plotkin, was down over 50 percent in the month of January as a consequence—a staggering loss for a fund of its kind. It seemed like the Reddit traders had won, but the tide turned in the other direction on January 28: Robinhood, the Reddit crowd’s favorite brokerage, prevented all of its users from buying GameStop while still allowing them to sell.

Number Go Up: Inside Crypto's Wild Rise and Staggering Fall
by Zeke Faux
Published 11 Sep 2023

GO TO NOTE REFERENCE IN TEXT “you forgot to switch your brain on?”: User: urwhatuknow, “Re: [OFFICIAL]Bitfinex.com first Bitcoin P2P lending platform for leverage trading,” Bitcointalk.org, February 10, 2014. GO TO NOTE REFERENCE IN TEXT he wrote to another: User: urwhatuknow, “Re: And we have another Bitfinex Hookey THIEVING Short Squeeze!,” Bitcointalk.org, June 22, 2014. GO TO NOTE REFERENCE IN TEXT lost 7 percent of all Bitcoins in existence: Jeff Wilser, “CoinDesk Turns 10: The Legacy of Mt. Gox—Why Bitcoin’s Greatest Hack Still Matters,” CoinDesk, May 4, 2023. GO TO NOTE REFERENCE IN TEXT laundering money for drug traffickers: “Russian National and Bitcoin Exchange Charged in 21-Count Indictment for Operating Alleged International Money Laundering Scheme and Allegedly Laundering Funds from Hack of Mt.

Nerds on Wall Street: Math, Machines and Wired Markets
by David J. Leinweber
Published 31 Dec 2008

Scalability is no longer a problem, and the result is going to be more and more sophisticated market manipulation.12 The ongoing battle between the spammers and the SEC resembles the seemingly endless series of Mad magazine “Spy vs. Spy” measures and countermeasures. As always, the best advice is caveat emptor. Never, under any circumstances, should you buy stock recommended by your newfound e-mail friend in Nigeria. Thr ee Hundr ed Years of Stock Market Manipulations 271 Notes 1. Corners and short squeezes, including various railroad manipulations by Cornelius Vanderbilt and others at the turn of the twentieth century, represent another form of manipulation through scarcity as opposed to redirecting people’s beliefs. This chapter focuses on manipulations based on false information of one type or another. 2.

Unknown Market Wizards: The Best Traders You've Never Heard Of
by Jack D. Schwager
Published 2 Nov 2020

So, you’re saying that the news was already priced into the stock. I think the stock was pricing in a lot more than that. After listing earlier this year [2019], the stock saw a parabolic move from $45 to $240 in a couple of months. The rally was so extreme because the stock had a small float, and there was a short squeeze. Once the news came out that the founders were selling a portion of their holdings, the stock collapsed back to under $140 in less than two weeks. So, another reason why I went short was that it was already a broken stock when the news about McDonald’s came out. I wouldn’t have stepped in front of that news if the stock was still in its roaring up phase; I was only willing to go short because the character of the stock was completely changed.

Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Published 11 Apr 2011

“I went back on the desk for seven months,” he explained. “Every desk—the corporate desk, the muni desk, the J. Aron people—all had this same trade on.” Goldman had expected the Japanese and the few hedge funds that owned the securities to roll them over, but that did not happen. “A huge, huge short squeeze developed over about six months,” Corzine said. “I think it was the biggest loss that I had ever been responsible for on a mark-to-market basis.” Although a member of the Management Committee, he had to report to the committee every other day about what was transpiring with the trade. Finally, after about five months of worry, the bet began to reverse and the bonds behaved as the traders had expected.

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In his 2007 end-of-year self-evaluation, Salem wrote about how Goldman took advantage of the fear in the market. “In May, while we … remained as negative as ever on the fundamentals in sub-prime, the market was trading VERY SHORT, and was susceptible to a squeeze. We began to encourage this squeeze, with plans of getting very short again, after the short squeeze caused capitulation of these shorts. The strategy seemed do-able and brilliant, but once the negative fundamental news kept coming in at a tremendous rate, we stopped waiting for the shorts to capitulate, and instead just reinitiated shorts ourselves immediately.” Others in the market just seemed confused about pricing in general.

Limitless: The Federal Reserve Takes on a New Age of Crisis
by Jeanna Smialek
Published 27 Feb 2023

The plan was to buy up so many of the outstanding shares of United Copper that it forced investors who were selling the stock short—effectively betting against the company—to buy the securities at a high price to settle their trades. It may have been a clever plot, but it was not clever enough: The collaborators miscalculated how much stock they needed to win control. When other investors realized that the so-called short squeeze[*3] had failed, the stock price plummeted. The losses were so spectacular that nervous investors began to pull their money from any banking institution tied to the financiers. The New York Clearing House was able to stem the initial runs by taking over management of the imperiled banks and lending to them.

Principles of Corporate Finance
by Richard A. Brealey , Stewart C. Myers and Franklin Allen
Published 15 Feb 2014

But there was one obvious decision you could have made back then—it’s better sometimes to turn these things upside down—and that was to short horses. Frankly, I’m disappointed that the Buffett family was not short horses through this entire period. And we really had no excuse: Living in Nebraska, we would have found it super-easy to borrow horses and avoid a “short squeeze.” U.S. Horse Population 1900: 21 million 1998: 5 million The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane—another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out aircraft manufacturers and found that in the 1919–39 period, there were about 300 companies, only a handful still breathing today.

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Since a further 20% was held by the state of Lower Saxony, there was not enough stock available for the short sellers to buy back. As they scrambled to cover their positions, the price of VW stock rose in just two days from €209 to a high of €1005, making VW the most highly valued company in the world. Although the stock price drifted rapidly down, those short-sellers who were caught in the short squeeze suffered large losses. The VW example illustrates that the most important limit to arbitrage is the risk that prices will diverge even further before they converge. Thus an arbitrageur has to have the guts and resources to hold on to a position that may get much worse before it gets better. Take another look at the relative prices of Royal Dutch and Shell T&T in Figure 13.7.

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., 167n, 334n, 343 Shin, B., 638n Shivakumar, L., 330n Shivdasani, A., 842n Shleifer, A., 296n, 343, 352n, 419n, 844n, 845n, 864, 864n, 869n, 869–870, 878 Shortage of capital, 117 Short-lived assets choice between long-lived assets and, 144, 145–148 investing in, 348–349 Short sales, 334–335 Short squeeze, 334–335 Short-term debt, 489 Short-term financial planning, 748–751, 757–760 cash budgeting, 748, 755–757 evaluating plan, 759–760 example, 758–759 leases in, 640–641 options, 758 short-term financial planning models, 760 sources of short-term borrowing, 757–760 Short-termism, 312, 874 Short-term tax-exempts, 794, 795 Shoven, J.

All the Money in the World
by Peter W. Bernstein
Published 17 Dec 2008

By 2005 Berkshire Hathaway owned more than sixty-five businesses, but still was mostly an insurer, with a $49 billion float to invest. Its book value has grown38 21.5 percent a year, compounded, since 1965. Not that Buffett doesn’t have39 his share of horror stories. Three episodes might have hurt him badly. The first came in 1954, when his net worth was about $54,000, and he was nailed in a short squeeze, an unexpected surge in the price of a stock he’d shorted that could have cost him all his money. He escaped—barely. Then he discovered a huge fraud in his insurance operations in the early 1970s. Fortunately, it wasn’t as bad as it first looked. Most recently, in 2005, his largest insurance business, General Re, which insures other insurers, was devastated by claims from three hurricanes and was also hurt by continuing fallout from investigations into fraudulent sales of insurance to American Insurance Group (AIG).

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

In the April 1991 Treasury bond auction, Steinhardt and Bruce Kovner between them bid for $6.5 billion of the $12 billion worth of paper that was due to be issued; then they lent these bonds to short sellers and bought them back again, ending up with $16 billion of bonds—considerably more, in other words, than 100 percent of the market.8 As the bonds shot up in value, the short sellers tried to get out; but they couldn’t buy back the paper because Steinhardt and Kovner had cornered the market, and they were not selling. The victims of this short squeeze included Goldman Sachs, Salomon Brothers, and Bear Stearns; it was hardly a case of the sharks eating the innocents. But, inevitably, someone sued. After three years of fighting in the courts, Steinhardt and Kovner settled without admitting guilt. Steinhardt agreed to pay $40 million in compensation to the short sellers, and Kovner paid $36 million.9 As if one brush with the law were not enough, the duo was also sued over irregularities in the May Treasury auction.

Big Debt Crises
by Ray Dalio
Published 9 Sep 2018

Because the dollar is the world’s reserve currency, and because of the dollar surplus recycling that has taken place over the past few years…lots of dollar denominated debt has been built up around the world. So, as dollar liquidity has become tight, there has been a dollar squeeze. This squeeze…is hitting dollar-indebted emerging markets (particularly those of commodity exporters) and is supporting the dollar. When this short squeeze ends, which will happen when either the debtors default or get the liquidity to prevent their default, the US dollar will decline. Until then, we expect to remain long the USD against the euro and emerging market currencies. The actual price of anything is always equal to the amount of spending on the item being exchanged divided by the quantity of the item being sold (i.e., P = $/Q), so a) knowing who is spending and who is selling what quantity (and ideally why) is the ideal way to get at the price at any time, and b) prices don’t always react to changes in fundamentals as they happen in the ways characterized by those who seek to explain price movements in connection with unfolding news.

The Last Tycoons: The Secret History of Lazard Frères & Co.
by William D. Cohan
Published 25 Dec 2015

"If you care to, you may say that you have been informed by an influential banking house that they have advices from abroad to the effect that steps have been taken in Paris which seem adequate to restore confidence in France and to protect the French exchange, and the situation appears well in hand." The French government quickly adopted Altschul's plan and constructed a classic "short squeeze" of the speculators who had been betting against the value of the franc. Due to "the sensitivities of the French government," Altschul's partners in Paris were given the job of implementing his ideas. According to a discussion of Lazard's role in the 1924 franc crisis in The Fortune Encyclopedia of Economics, "Using a $100 million loan from J.

Quicksilver
by Neal Stephenson
Published 9 Sep 2004

For the French nobility, Paris is like the Mother Earth—as long as they are ensconced there, they have power, information, money. But Louis, by forcing them to move to Versailles, is like Hercules, who mastered Antaeus by raising him off the ground and slowly strangling him into submission.” “A pretty similitude,” Eliza had said, “but what does it have to do with our putting a short squeeze on Mr. Sluys?” De la Vega had permitted himself a smile, and looked over at Bolstrood. But Gomer had not been in a grinning mood. “Sluys is one of those rich Dutchmen who craves the approval of Frenchmen. He has been cultivating them since before the 1672 war—mostly without success, for they find him stupid and vulgar.