Short squeezes are not uncommon and the ‘mother of all short squeezes’ happened in October 2008 when Volkswagen briefly become the most valuable company in the world when Porsche increased its stake in Volkswagen which suddenly reduced the available float to a level far below the short interest. This causes a chain reaction as more and more short sellers close their positions as prices rocket upwards. As short sellers buy back shares, this pushes the share price even higher, forcing even more short sellers to close their positions or risk losing more money. As prices go higher, short sellers lose more money which eventually forces some of them to close their position by buying back shares. But evidently, no one was paying any attention or enforcing this rule.Įventually, r/wallstreetbets picked up on this (all hail our king u/deepfuckingvalue) and decided to take the opposite trade and buy up shares of GameStop in order to drive the price up and trigger a short squeeze. This isn’t meant to happen and is illegal. (Just to give you an idea, a short interest of 20% is considered extremely high.) What this means is that the hedge funds short sold more shares than there are actual shares available on the market. However, in their greed, the hedge funds shorted up to 140%(!) of the public float of GameStop stock. In a nutshell, a bunch of Wall Street hedge funds - chief among them, Melvin Capital and Citron - have bet billions that GameStop will ultimately go bankrupt as video game retailing goes digital (similar to what happened with video rentals and Blockbuster).
VW SHORT SQUEEZE FULL
I won’t dive into the full details of what a short trade is – there are already many articles/videos explaining it – but I will give a quick summary of the GameStop situation and what the endgame is for all the ‘retards’ (anagram of traders) on r/wallstreetbets and everyone else on their side. Year to date, the share price of GameStop has risen from US$17.25 to US$325.00 (as of 31 January 2021). By now you must have heard of GameStop and how a Reddit forum of stock and option traders on r/wallstreetbets have been massively buying up shares of GameStop in a bid to prevent Wall Street hedge funds from running the video game retailer into the ground and profiting from their short trades.
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