![]() And you know, being on the wrong side… is a rather un-thrilling position. ![]() Being on the right side of a short squeeze is a very thrilling position. Basically: it’s a big game of fast-paced price movements, occasional hedge fund “chicken”and a whole lot of potential. In short form (not a pun) – A short squeeze is when a stock aggressively increases in price causing short sellers to have to cut losses and exit their positions, inadvertently further driving up the price per share of said stock. Let’s take a look at the details that led to the alrighty Volkswagen short squeeze of 2008!ĬLICK TO WATCH THE IMMERSIVE VIDEO VERSION OF THIS STORY So… What is a Short Squeeze? The specifics about this story are truly insane. After a series of clever, intense moves, this all set the path moving for Volkswagen to briefly become the most valuable company in the entire world. This was, and still is considered, the biggest short squeeze in history! In late 2008, amidst the global financial crisis: Porsche took a swing in the world of financial maneuvers. Porsche today holds a 53.What Was The Volkswagen Short Squeeze of 2008?.That unforgettable day was October 28, 2008. The stock price skyrocketed, making Volkswagen the world's most valuable company for a day.Half of the short sellers couldn’t close their positions.With Lower Saxony's 20% stake, the shares available on the open market dropped to under 6%.Porsche revealed that it had gained control of 74% of Volkswagen voting shares.Hedge funds began shorting Volkswagen stock.The stock price rose without no apparent reason, the stock seemed overvalued.In late 2008, Porsche started buying up shares of German carmaker Volkswagen to gain more voting rights.Is it a fundamental shift in investment? You bet!.Is it illegal or not? The White House and the SEC say they are monitoring markets.Is this fraud? Market manipulation? We don’t know yet.Robinhood and other brokers imposed temporary restrictions on GameStop trades.This fueled a further rally in the stock price.Investors betting against the stock, including prominent Wall Street firms like Melvin Capital Management, were forced to close out their short positions by buying the stock.The New York Stock Exchange halted trading in GameStop shares several times.Forum members, including lots of novice retail traders, started purchasing GameStop stock in large numbers.Subreddit forum WallStreetBets members noticed that institutional investors held huge short positions against troubled video game retailer GameStop.You definitely don’t want to get caught on the wrong side of trades at this point.Ī scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal, according to the SEC. This in turn drives the share price even higher, which can cause an even greater squeeze. ![]() The higher the price goes, the bigger the loss.Ī sharp stock price increase usually triggers a rush by short sellers to cover their positions. The difference in price is their profit. However, if the price goes up, short sellers lose money. If the price of the stock drops, short sellers can buy the stock back at a lower price and then return it to their broker. Short sellers want to profit from an expected decrease in the stock price. You typically borrow these stocks from your broker. The term “short squeeze” refers to the pressure on short sellers to cover their positions as a result of sharp price increases or difficulty in borrowing the security the sellers are short, according to the definition of the US Securities and Exchange Commission.Ī short sale is the sale of stocks you do not own. ![]()
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