Who loses money in a short squeeze?
A short squeeze occurs when a stock that is heavily shorted experiences a rapid increase in price that forces short sellers to cover their positions by executing buy orders at market price. This generates a massive imbalance between supply and demand where short sellers lose, and the bulls of Wall Street win.
Put simply, a short sale involves the sale of a stock an investor does not own. When an investor engages in short selling, two things can happen. If the price of the stock drops, the short seller can buy the stock at the lower price and make a profit. If the price of the stock rises, the short seller will lose money.
When you are ready to close your short position, you must buy the same number of shares at the current price at the time and return them to your broker. Your profit/loss is the difference between the price you initially sold at and the price you ultimately bought them for. No one loses money except you.
- What are short squeezes? ...
- The greatest short squeezes of all time. ...
- 1923: Piggly Wiggly short squeeze. ...
- 2008: Volkswagen vs Porsche. ...
- The big short on Herbalife. ...
- 2020: Tesla stock price rally. ...
- 2021: The GameStop surge.
| Symbol Symbol | Company Name | Float Shorted (%) |
|---|---|---|
| UPST UPST | Upstart Holdings Inc. | 40.70% |
| SPWR SPWR | SunPower Corp. | 40.15% |
| RVSN RVSN | Rail Vision Ltd. | 38.80% |
| BYND BYND | Beyond Meat Inc. | 38.38% |
While the exact details of Gill's net worth are uncertain, he confirmed that his all-time high value in GameStop was nearly $48 million, and his current net worth, as depicted in the movie Dumb Money, is $34 million.
Unlimited losses
The potential gain for long investors showcases the main risk for short sellers: The stock can continue rising indefinitely. When you sell a stock short, there's theoretically the potential for unlimited losses. That's because the stock can continue rising over time, wiping out other gains.
But there's one group of investors who charge in to buy when stocks are selling off: the corporate insiders. How do they do it? They have 2 key advantages over you and me that provide them the edge during uncertain times. If you follow their lead, you can have that edge too.
For instance, say you sell 100 shares of stock short at a price of $10 per share. Your proceeds from the sale will be $1,000. If the stock goes to zero, you'll get to keep the full $1,000. However, if the stock soars to $100 per share, you'll have to spend $10,000 to buy the 100 shares back.
Short selling involves borrowing shares of a stock and selling them to buy them back later at a lower price. The method is based on expecting the stock's price to decline. You profit from the difference between the selling price and the lower buying price.
Why do short sellers lose money?
However, a trader who has shorted stock can lose much more than 100% of their original investment. The risk comes because there is no ceiling for a stock's price. Also, while the stocks were held, the trader had to fund the margin account.
The brokerage firm that lent the shares from one client's account to a short seller will usually replace the shares from its existing inventory. The shares are sold and the lender receives the proceeds of the sale into their account. The brokerage firm is still owed the shares by the short seller.
Tesla: The Most Shorted Stock in 2023
Tesla holds the top position as the most shorted stock in 2023 so far. Of the 15 companies listed, seven rank among the top 50 largest companies in the world. The EV maker's shares are often volatile, which may explain the popularity of making short-term bets on the stock.
The GameStop short squeeze, starting in January 2021, was a short squeeze occurring on shares of GameStop, primarily triggered by the Reddit forum WallStreetBets.
First, despite the fact that behavior intended to squeeze short sellers is illegal in most countries short-squeeze events continue to occur, with the January 2021 meme-stock squeeze events being the most prominent recent examples.
Shorting a stock is when an investor bets the price will fall. Tesla, for one, was the most painful short bet, resulting in $12.2 billion of paper losses for traders in 2023. Nvidia shorts saw $11.2 billion in paper losses, and Apple came in third place with $7.3 billion in losses.
Search for the stock, click on the Statistics tab, and scroll down to Share Statistics, where you'll find the key information about shorting, including the number of short shares for the company as well as the short ratio.
But there's no ceiling on the stock. You can sell it at $10 and then be forced to buy it back at $20 … or $200 … or $2 million. There is no theoretical limit on how high a stock can go. The first way to avoid getting squeezed is simply to avoid shorting.
What Happened to Roaring Kitty? Roaring Kitty, who has been revealed to be Keith Gill, went dormant in 2021. There have been no new posts on any of his social accounts.
As of 2023, several different sources reported Gill's estimated net worth to be around $30 million.
How much did Keith Gill make off GameStop?
Gill uploaded one final spreadsheet to Reddit in April 2021 valuing his GameStop stock at $34,473,248.01. At its peak, Reuters valued Gill's GameStop stock at $48 million. Those who have followed the saga are split on whether Gill ever sold any of the stock or if he's still holding onto most of it.
No. A stock price can't go negative, or, that is, fall below zero. So an investor does not owe anyone money. They will, however, lose whatever money they invested in the stock if the stock falls to zero.
You can maintain the short position (meaning hold on to the borrowed shares) for as long as you need, whether that's a few hours or a few weeks.
The price of the stock has to drop more than the percentage of margin you used to fund the purchase in order for you to owe money. For example, if you used 50% margin to make a purchase, the stock price has to fall more than 50% before you owe money on your purchase.
Cut losses in each investment at 7% or less. No questions asked. Just move on to the next trade. The golden rule of selling is as simple as that.
