In order to understand what a “normal” amount of short interest looks like, let’s look at the short interest in the top 5 largest stocks on the US exchanges. Short Interest in the Top 5 Largest US Stocksįirst, a comparative benchmark. Ride the waves of market momentum with two actionable trade ideas designed to capture technical break outs and break downs - delivered to your inbox every week. Ready to start trading the technicals? Try Rebel Weekly. In short : Short squeezes occur when short-sellers are all rushing for the door to close out their short positions before things get any worse. Add the effect of momentum traders jumping onto the bandwagon hoping to take advantage of the trend, and you’ve got a recipe for some truly gargantuan price-movement. When there’s suddenly a swell of buyers (short-sellers must buy shares in order to close their short positions), and no change to the quantity of sellers, this can lead to rapidly appreciating prices - triggering more threats of margin calls and forced liquidation to other short-sellers, who must then join the frenzy. That means that a single margin call and liquidation (or even the threat of one) can often generate a domino effect that triggers short-sellers to rapidly attempt to close their position at a loss. #Gme short float free#If the trade begins to run too-far in the wrong direction, crossing over the margin requirement, brokerages may issue a margin call - a forced liquidation of the short-seller’s position, unless they can add or free up more funds elsewhere. That means these trades also have margin requirements - a percentage of the trade that the short-seller must pay for with their own money. That means these high-risk trades can only be made with the help of margin - money that a broker ‘loans’ the short-seller in order to make the trade. To understand how a short squeeze works, you have to first understand that short-selling is an ‘infinite risk’ maneuver. When a large percentage of the total number of shares in a stock are sold short, it can create the perfect breeding ground for a short squeeze. Short interest can also be expressed as a ratio, representing the number of days it takes short sellers to cover (or repurchase ) their short position - the total number of shares sold short divided by the average daily trading volume. Short interest is often expressed as a percentage - the total number of shares sold short divided by the total number of shares outstanding. Short interest is a representation of the quantity of shares that are currently sold short - meaning the position is still open. Much of the recent “meme stock mania” is centered around the concept of short interest. Pictured: Stellar short-term rallies in BBBY, CVNA, EVGO, FUBO, HTRX, MSTR, NVTA, PACB, and BNGO (read left to right, top to bottom). Below, you’ll find some of these names on the list of the top 10 most shorted stocks in the market - but first, let’s look at what short interest and short squeezes are, and how they can cause rallies like the ones below. What do they all have in common? Three words: High short interest. Over the past month, stocks like Bed Bath & Beyond (BBBY - up another +42% on the day as of 8/16, and +360% month-over-month), Revlon (REV), Invitae (NVTA), Microstrategy (MSTR) and many more have been the beneficiaries of truly massive rallies.
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