Short squeeze

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Short Squeeze ( English squeeze : shortages, bottlenecks, terminal) is the shortage of supply of a security (usually a share ) previously in large numbers sold short was ( "shorted"). After the short sales, the resulting open positions must be closed again. If, contrary to the expectations of the short sellers, the stock market price of the security rises , many short sellers have to buy back the security at the same time in order to limit losses , which can lead to excess demand , which drives the price even higher and thus further increases the short sellers' losses. Theoretically, short sellers therefore have an unlimited risk of loss.

Examples

VW share price at the end of October 2008.

An example of such a short squeeze is the price explosion of Volkswagen ordinary shares that began on October 27, 2008. On October 26, 2008, the company informed Porsche that it had increased its stake in VW from 35% to 42.6% and that it had secured a further 31.5% through options, which would bring it to a total of 74% if the options were fully exercised , 1% come. Speculators , especially hedge funds , had bet on falling prices and sold VW common shares short. Since the state of Lower Saxony held a further 20% of the VW shares, less than 6% of the VW shares remained freely tradable. The short sellers had borrowed 12% of the VW shares, which they had to buy to repay the loan on the stock market. So they were in a short squeeze.

By closing out their short positions, the price of VW ordinary shares exploded and rose within two days from around EUR 200 to over EUR 1000 (see chart on the right). Investors who were betting on falling prices now had big losses. VW briefly became the company with the world's largest market capitalization .

Another example of a short squeeze was July 16, 2008 for banking stocks in the US stock market after the Securities and Exchange Commission SEC had tightened the rules for short selling of shares. Some stocks had daily gains of 20 to 30% without changing the news.

Individual evidence

  1. ↑ course doubling at VW. In: manager-magazin.de. October 27, 2008, accessed October 31, 2008 .
  2. ↑ Squeezing the accelerator. In: economist.com. October 29, 2008, accessed December 14, 2008 .
  3. ↑ Stock exchange reduces VW weight in the Dax. In: manager-magazin.de. October 29, 2008, accessed November 16, 2008 .
  4. ↑ Harald Weygand: Massive short squeeze at the US banks. In: Godmode-Trader.de. July 16, 2008, accessed October 31, 2008 .