The thing is, sometimes these distressed and "sick" companies will surprise short-sellers by announcing good news. They'll focus on those businesses that are most likely to fail.
Companies with large short positions are usually very distressed - short-sellers won't mess around with strong companies with strong balance sheets and growing businesses. I just mention this so that you don't go around buying up the stock of companies with large short positions so that you can profit from a "short squeeze".
Companies with large short positions are usually very much in trouble. Stocks have large short positions for a reason - hedge fund managers and other traders (who are usually very astute and knowledgable) strongly believe that the stock is heading lower. Having said that - on the day that I am writing this, BARE just dropped over 38% due to poor third quarter earnings. BARE is a candidate for a short squeeze, but Microsoft is not.
Of these shares, a full 14.98 million were short, or 18.10%. As of October 10th, 2008, the company had a float of 64.49 million shares. There is always going to be plenty of liquidity in Microsoft's shares due to the size of the float - lack of liquidity is always a big contributing factor to a "short squeeze."īARE is a company that currently trades on the Nasdaq. However, you need to also look at the percentage of shares short versus the float - in Microsoft's case, this is just 0.90%. You might look at Microsoft and think that they are candidates for a "short squeeze" because there are currently 61.21 million shares of the stock short. You are not going to get a "short squeeze" in stocks that do not have heavy short positions relative to their floats. The optimal conditions for a legitimate "short squeeze" include: a heavily shorted stock with a small float that releases some type of positive news. In quick and simple terms, a "short squeeze" is when short-sellers in a company are forced to cover at a higher price. For a short period of time, Volkswagen was the most valuable company in the world, topping the likes of Exxon Mobil, Microsoft and General Electric.
Volkswagen's shares exploded earlier this week as the result of a major "short squeeze." Volkswagen traded from approximately 210 euros to just under 1000 euros over the course of just a couple of days. The term "short squeeze" has been bandied about quite a bit in the media as of late, especially when referring to the current situation involving Porsche and Volkswagen.