You may have heard of the term “short squeeze” in the past – but didn’t know what it meant. I’m here to tell you what it is and how you can capitalize and profit from a short squeeze.
What is a short squeeze?
There are two players in the market. There are the “longs” and the “shorts” which are equivalent to buyers and sellers.
Buyers are looking for the stock to head higher while Sellers are looking for the stock to head lower.
Sellers typical are borrowing shares from their brokers – then will look for the stock to head lower – they’ll purchase it back at a lower price and pocket the difference. These are called “short sellers.”
The buyers or “long sellers” want to buy the stock and then later sell it at a high price.
These two sides are always pulling and tugging against the stocks. When the stock starts going lower and lower and “short sellers” are making more profit – you start having “value buyers” coming into buy stocks. Because of this – the stock starts to go higher and forces some of the “short sellers” to buy back their stocks at a profit. And this forces the stock to get higher, which means more players will buy the stocks.
How do you find these stock that are prone to short squeezes?
You’ll want to look for stock that have a high short interest. The more percentage that the stock is short, the more likely it will be to have a short squeeze. And this is due to the sheer fact of the tug-of-war with the balancing of the stocks. The more people that are short – the more the stock with bounce. The stock may not bounce, but it’s more likely with a high short interest.
As you watch these heavily shorted stacks – you’ll start to see these opportunities to capitalize on these short squeezes. Remember, there’s a lot of different ways to make money and strategies in the market – but not all are the right strategy for you. Think of short squeezes as another tool in your toolbox when it comes to the stock market.