The Second GameStop Short Squeeze

January 23, 2021

Damyan

Written by Damyan I write this stuff. Enjoy You should follow them on Twitter

What is a short position?

If you believe in a stock you buy shares. If you don’t believe in the stock you can open a short position. And that is a contract between 2 parties. The short seller borrows the stock. Sells it at a high price. Wait for it to drop. And then buys the shares again and returns them. Resulting in the short seller pocketing the difference. All this happens automatically, Short selling is nothing new. And it’s a daily occurrence for many. Also very profitable. If you can spot overvalued stocks. On the other hand, if the stock goes up. And it continues to go up. You get a margin call. And you have a decision to make. To fund your account with more funds. To continue the short. Or to exit your position. And take the hit in the face.

A short squeeze happens when the stock climbs so high that all short sellers are forced to cover their positions. And buy at a high price. Snowballing the effect into a parabolic chart. Straight up.

But short selling is a nasty game. A game where you are cheering for a company to fail. And of course, many short sellers actually manipulate stocks. They create fake stories and spread fear, uncertainty, and doubt. They sometimes trough shade at legitimate companies. Famously Tesla and Amazon. This is where the saga starts. A noted short-seller Citron said 60% of their firm’s position is shorting $GME. GameStop already is the most shorted stock. This touched a nerve of a group of investors. Who decided to drop an atomic bomb on the short seller.

 

The 2 million strong “degenerate” members of Reddit group r/WallStreetBets threw everything they got and the kitchen sink at this stock. Pumping the price 70%. It rose so fast, so quickly the trading was halted.

During the Friday trading session, we saw one of the biggest short squeezes ever. The stock rose +70% in a few hours. Activating the circuit breakers and halting the trading of GameStop stock. r/WallStreetBets were ecstatic. A bunch of Yolo-ing Redditors were able to liquidate a huge shorting firm. And all the other shorts. This is where you think the story ends. But no. Examine the photos below

Reddit r/WallStreetBets

There is more than 50% chance of a short squeeze happening again.

Source: r/WallStreetBets

The Redditors feel empowered. And by monitoring their posts we can see a second wave coming. It doesn’t take a genius to figure out after this historic event a second short squeeze is coming. A short squeeze is always fun to watch. 2 Million motivated people are about to shock the world. Again. Redditors are considering putting their entire ROTH IRA into $GME. And 2 million more potential $GME all in, Uhm, investors. Of course, not all members will do this stupid stuff. Most won’t, But I still believe that this may happen again. As unlikely as it was the first time. Either way good Speed to all.

 

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