RiskPicksWhat is a Short Squeeze?
A short squeeze occurs when a heavily shorted stock rises sharply, forcing short sellers to buy back shares (cover) to limit their losses. This buying pushes the price even higher, triggering more short sellers to cover: creating a feedback loop.
Ingredients for a short squeeze
- High short interest: typically 20%+ of the float sold short
- Low float: fewer shares available amplifies the squeeze
- Catalyst: positive news that triggers the initial move
- High days to cover: short interest / daily volume = how many days it would take all shorts to cover
Famous examples
GameStop (GME) in January 2021 is the most well-known short squeeze, where the stock went from $20 to $483 in days. But short squeezes happen regularly on smaller scales in low-float stocks.