Are These 3 Companies Next for Short Squeezes?
An increase in the price of a stock you own isn't the only way to make money from it. If you're bearish on a stock and believe the price will drop, you can short the stock. Shorting a stock involves borrowing shares at the current price to sell them immediately and repurchase them later at a cheaper price to pocket the difference. For example, if you borrow shares of a company at $100 per share and sell them and the price drops to $80, you can repurchase the shares you borrowed and make a $20 profit per share.
A short squeeze occurs if a shorted stock's price increases instead and sets off a chain reaction. If you short a stock, you're obligated to return those same shares, regardless of how much you have to pay to get them back. So, the stock's price rises, and at some point, investors will want to cut their losses and repurchase the shares before they continue to increase. If lots of investors do this, it increases the demand, which in turn sends the stock's price up even more, creating a short squeeze.
A stock's float is the number of shares available for the public to buy and sell. The short percentage of a float is the number of shorted shares from the total amount of available shares, and it can give insight into how investors view the company. A high float percentage -- generally 20% or more -- shows investors are generally bearish on the company.
Source Fool.com
