Lesson 8 of 8
Short Squeezes
When shorts get crushed: the GameStop saga
GameStop had 140% short interest, meaning more shares were borrowed and sold short than actually existed. When Reddit's r/WallStreetBets started buying, shorts were forced to buy back shares to cover their losses, which pushed the price higher, which forced more buying. A feedback loop.
GME 5 year chart. The January 2021 spike was one of the most extreme short squeezes in market history.
The famous squeezes, and what actually happened
GameStop (Jan 2021)
140% short interest. Melvin Capital lost $6.8B in a month. Crashed back to $40 within weeks.
AMC (May 2021)
Rode the meme-stock wave. Later diluted shareholders with new issuances, stock bled out.
Volkswagen (2008)
Porsche revealed a 75% stake overnight. VW briefly the most valuable company on earth.
Bed Bath & Beyond
Squeezed briefly then bankruptcy. Retail traders who bought in late lost everything.
AMTD Digital (2022)
32,000% move in weeks on thin float. Crashed 99%. Nothing fundamental, pure mechanics.
Survivorship bias: you hear about the winning squeezes. Most short-interest plays just grind down and fail.
How a squeeze starts
Stock has very high short interest (>20%)
Positive catalyst or coordinated buying
Price starts rising, shorts start losing
Shorts forced to buy back, accelerating the rise
How it ends
Eventually runs out of buying pressure
Price crashes back down violently
Late buyers get destroyed
GME went from $483 back to $40 in weeks
lesson
Short squeezes create incredible gains and incredible losses. If you're late to the party, you ARE the exit liquidity. Most people who bought GME above $300 lost money.
Check yourself
Why did GameStop's short interest above 100% create such an extreme squeeze?