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The Short Squeeze heard around the world has been the talk of the town the past week or so
However, many have inquired as to what exactly this is, so let me explain
"Shorting Stocks"
THREAD
However, many have inquired as to what exactly this is, so let me explain
"Shorting Stocks"
THREAD
1/
As a disclaimer, shorting stocks is not something I ever recommend as it is extremely risky
"Shorting a stock" is betting on a stock decreasing in value
Regular shareholders make money when stocks go
but some can make money when stocks go
As a disclaimer, shorting stocks is not something I ever recommend as it is extremely risky
"Shorting a stock" is betting on a stock decreasing in value
Regular shareholders make money when stocks go
but some can make money when stocks go
2/
When buying ownership of a stock (expecting it to increase), the downside risk stops at $0
The risk with shorting a stock is ENDLESS. Short investors make money when stocks go down but the opposite is unlimited
When buying ownership of a stock (expecting it to increase), the downside risk stops at $0
The risk with shorting a stock is ENDLESS. Short investors make money when stocks go down but the opposite is unlimited
3/
Let's look at the process of "Shorting" a stock
Investor A who is looking to short a stock will first borrow shares from a brokerage, and you will turn around and sell those shares at market price
Let's say you borrow 100 shares of stock A at $10, you would receive $1K
Let's look at the process of "Shorting" a stock
Investor A who is looking to short a stock will first borrow shares from a brokerage, and you will turn around and sell those shares at market price
Let's say you borrow 100 shares of stock A at $10, you would receive $1K
4/
Investor A is required to return the borrowed shares to the brokerage to close the short position
If shares do decrease to say $4, Investor A would buy 100 shares for $400 to return to the brokerage, which would profit investor A with $600
$1,000 - $400 = $600 PROFIT
Investor A is required to return the borrowed shares to the brokerage to close the short position
If shares do decrease to say $4, Investor A would buy 100 shares for $400 to return to the brokerage, which would profit investor A with $600
$1,000 - $400 = $600 PROFIT
5/
In the world of $GME and $AMC among others, the reddit users have bought up the stock knowing that in order for the short sellers to close their position, which tend to be large, must BUY shares to close, which in turn will boost shares even HIGHER
In the world of $GME and $AMC among others, the reddit users have bought up the stock knowing that in order for the short sellers to close their position, which tend to be large, must BUY shares to close, which in turn will boost shares even HIGHER
6/
In our example, the $10 stock has now gone to $50 and to close a LARGE position like these hedge funds usually have, it could drive the price up to $70.
If they close the position around $50, that would result in a LOSS of $4K
$1,000 - $5,000 = $4,000 LOSS
In our example, the $10 stock has now gone to $50 and to close a LARGE position like these hedge funds usually have, it could drive the price up to $70.
If they close the position around $50, that would result in a LOSS of $4K
$1,000 - $5,000 = $4,000 LOSS
7/
Again, I am using a very basic example to explain the process, but you can understand how the hedge funds are incurring HUGE losses with stocks like $GME $AMC $KOSS and others up HUGE percentages
Again, I am using a very basic example to explain the process, but you can understand how the hedge funds are incurring HUGE losses with stocks like $GME $AMC $KOSS and others up HUGE percentages
8/
When normal buyers are pushing up the price of a heavily shorted stock, this in turn creates the "Short Squeeze" as the short investors must close their position
When normal buyers are pushing up the price of a heavily shorted stock, this in turn creates the "Short Squeeze" as the short investors must close their position
9/
Shorting stocks are VERY risky due to the fact losses are infinite
Not everyone can short a stock, it is done using margin (borrowed money) and an investor must first seek permission from their brokerage
Feel free to send me a DM with any questions you may have.
Shorting stocks are VERY risky due to the fact losses are infinite
Not everyone can short a stock, it is done using margin (borrowed money) and an investor must first seek permission from their brokerage
Feel free to send me a DM with any questions you may have.
