Trading in the stock market in 2022 seems like something out of this world. It’s almost every other day where traders catch wind of yet another stock being heavily shorted which can send massive buying to that ticker and send it up 20% or even 200% within a given day.
With this volatility in the markets, along with more transparency and information bring readily available it seems like there is a lot of potential to make a lot of money in a short amount of time off these overly short stocks… And the answer to this is… Well, YES there’s is… If you know how to play it.
SHORT SQUEEZE SETUPS
Before you start putting your hard-earned money into the market’s next overly shorted stock, you need to know a few things. Remember that short sellers are hoping for the stock they short to drop in price aggressively so they can buy back their shares for a cheaper price thus realizing a profit… But when things turn upside down for them it can result in a major short squeeze which everyday traders have learned to capitalize off of.
Short squeeze defined on Investopedia: A short squeeze is an unusual condition that triggers rapidly rising prices in a stock or other tradable security. For a short squeeze to occur, the security must have an unusual degree of short sellers holding positions in it. The short squeeze begins when the price jumps higher unexpectedly.
Names that have shorted squeezed in the past include AMC Ent. Game Stop, Bed bath and beyond and many others.
HOW TO SPOT THE NEXT SHORT SQUEEZE
Spotting the next short squeeze and getting in on the action first could lead to a very profitable play for you. Of course, like anything in life it is not exactly that easy though.
Watching for stock names which have a more than normal amount of their overall float shorted is a good idea to start with. These numerous stocks have likely been shorted heavily for a while though, so what would make them all of a sudden short squeeze?
In recent years online message board like wall street bets on reddit and other large finance communities have been at the starting line of these short squeezes.
This is because for a heavily shorted stock to start to squeeze and move up in price, all it could take is come bullish price action and then the shorts (at least some) could feel like they are going to be forced out of their positions in order to manage risk ect.
SHORT SQUEEZE UNLIMITED LOSS
When a short squeeze is in fact starting to happen; The stock which is heavily shorted is starting to gain more and more buyers and the short sellers are being forced to buy back their shares as soon as possible, the downside potential for the short sellers is infinite (meaning it could reach any number) until a broker issues margin calls which are likely during this scenario. This is why shorting a stock is so dangerous and why buying a stock which is sold short could be a good opportunity perhaps.
THE BOTTOM LINE
Short squeezes are here to stay in the stock market and those who are most informed could make life changing amounts of money off the next major short squeeze. Timing the next short squeeze will be tricky, but if you know where to look… YOU could be cashing in big during the next major short squeeze to the moon.