How Short Squeezes Work

Looking to make a quick profit through trading requires knowing all kinds of selling strategies. One of these is short squeezing. In this article, we’ll figure out short squeeze stock meaning and how does a short squeeze work.

Short Squeeze Stock Meaning

A short squeeze happens when investors who have sold short a stock are forced to buy it back at a higher price. If the stock’s price falls, the short seller can buy back the shares at a lower price and return them to the lender. They, thus, get to pocket the difference as profit.

To answer the question of “How does a short squeeze work”, this is what happens. If the stock’s price increases the short seller is forced to buy back the shares at a higher price to limit losses. This drives the stock’s price even higher, therefore, creating a short squeeze.

What is a Short Squeeze Candidate?

Now that you know the short squeeze stocks meaning, let’s look into short squeeze candidates. They usually have characteristics that make them attractive to traders looking to profit from a short squeeze. These are:

  • High short interest ratio (SIR)
  • Low float
  • High levels of investor sentiment

Top Short Squeeze Candidates

In recent years, the following stocks have been great short squeeze candidates. These include:

  • GameStop (GME)
  • AMC Entertainment Holdings (AMC)
  • BlackBerry Limited (BB)
  • Bed Bath & Beyond Inc. (BBBY)
  • Koss Corporation (KOSS)

Some of these stocks saw their prices skyrocket as small investors banded together on online platforms to drive up the prices. This forced short sellers to buy back shares at much higher prices.

Free Short Squeeze Screener

To help traders quickly identify potential short squeeze candidates, a number of screening tools have been developed. They provide information such as short interest ratio, float, and sentiment data.

Screeners available for free online provide robust information that can help you strategize accordingly. But for more advance short squeeze strategies, consider a paid version too.

Short Squeeze Scanner vs Gamma Squeeze

To finish off, let’s check what is a gamma squeeze vs short squeeze. We already know that a short squeeze focuses on stocks. A Gamma squeeze, however, focuses on options contracts.

With a gamma squeeze, options market makers adjust their hedges, leading to exaggerated moves in the underlying stock’s price.



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