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As of March 15, 2021, GameStop's, AMC's, and Sundial's short shares could all be covered in a matter of a few hours. Unfortunately, the days-to-cover figure isn't all that impressive anymore. That's the definition of trapping a pessimist in their position.
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This is a measurement of how many days it would take all short-sellers to cover their shares, and it's based on a stock's average daily trading volume.įor example, when GameStop had in the neighborhood of 50 million shares held short and an average daily trading volume of around 6 million shares, it would have taken eight sessions for short-sellers to cover their positions. Secondly, and arguably the bigger issue, is that there's been a significant decline in what's known as "days to cover," also known as the short ratio.
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These are high percentages relative to the average publicly traded stock, but not eye-popping in the sense of effecting a short squeeze. Likewise, AMC and Sundial now have short interest of 12% and 10%, respectively. Since covering a short position requires buying shares of the company in question, it only exacerbates an upside move. A rapidly rising share price gives them cause to exit, sending them scurrying to cover their positions at the same time. In simple terms, a short squeeze is an event where short-sellers become trapped in their positions. The goal for these WSB traders has been to enact a short squeeze. A majority of the outstanding short interest in the market comes from institutional investors and hedge funds.īeginning in mid-January, retail investors on Reddit's WallStreetBets (WSB) chatroom began banding together to buy shares and out-of-the-money call options in stocks with very high levels of short interest relative to their float (i.e., the tradable number of shares). They make money if it declines in value, with gains capped at 100% (a stock's share price can't drop below $0), while losses are unlimited. Short-sellers are investors who borrow money on margin to bet against a security.