A "short squeeze" in the context of the stock market refers to a situation where the price of a stock experiences a rapid and significant increase due to a sudden and forced covering of short positions. To understand the history of short squeeze stocks, we can look at a few notable examples from recent years:
- GameStop (GME) - January 2021: GameStop is perhaps the most famous example of a short squeeze in recent history. Retail investors on Reddit's WallStreetBets forum coordinated buying of GME shares, causing the stock's price to skyrocket. This caught many hedge funds and institutional investors who had heavily shorted GME off guard. The rapid increase in price forced these short sellers to cover their positions, driving the stock price even higher. GME's stock price went from around $20 per share to over $400 per share in a matter of days.
- AMC Entertainment (AMC) - Early 2021: AMC Entertainment, a movie theater chain, experienced a similar short squeeze to GameStop around the same time. Retail investors, again led by the WallStreetBets subreddit, drove up the price of AMC shares, causing short sellers to scramble to buy shares and cover their positions. AMC's stock price surged from single digits to over $70 per share.
- Tesla (TSLA) - 2020: While not a traditional short squeeze, Tesla saw a significant increase in its stock price in 2020. Many investors had bet against Tesla by taking short positions, expecting the stock to decline. However, Tesla's strong financial performance, inclusion in the S&P 500, and growing investor optimism caused the stock to surge. Short sellers were forced to cover their positions, contributing to the upward momentum.
- Volkswagen (VOW3) - 2008: A classic example of a short squeeze occurred in 2008 with Volkswagen's stock. Porsche had been quietly accumulating a large stake in Volkswagen, and when they announced their holdings, it triggered a massive short squeeze. Volkswagen's stock price briefly became the most valuable company in the world, catching many short sellers by surprise.
- Herbalife (HLF) - 2013: Herbalife, a nutritional supplements company, became the center of a short squeeze battle between billionaire investors. Hedge fund manager Bill Ackman publicly accused the company of being a pyramid scheme and took a massive short position. However, other investors, most notably Carl Icahn, took the opposite side of the trade, leading to a volatile battle between the bulls and bears.
These historical examples demonstrate that short squeezes can occur for various reasons, including coordinated retail investor efforts, unexpected developments, or aggressive trading by institutional investors. They often result in significant price volatility and can lead to substantial losses for short sellers. Traders and investors need to exercise caution and conduct thorough research before participating in such situations.