Assuming they buy at $25, they return the borrowed shares for $5 and realize a loss of $20 per share. They now must either hold out and hope the stock price comes back down quickly, or they need to buy shares at this level to stop losing additional money. Let’s say the short seller borrowed AMC shares at $5 per share, and the stock rallied to $25 per share. Let’s go back to the AMC example to illustrate this. Because stock prices can go infinitely higher and the sellers must buy them at the market price to pay back the shares of stock they don’t own, there is no maximum limit on the loss a short seller can realize. What is a short squeeze?Ī short squeeze happens when the stock price rises significantly, and the short seller has to buy back shares at a higher price. As the stock price rose higher, a short squeeze occurred. This trading strategy blew up in many hedge funds’ faces when Redditors from Wall Street Bets and other retail investors decided to start buying shares of AMC.īecause the stock price was rising and not falling, the hedge funds had to borrow shares for longer than they liked and pay interest during this time. If the stock price dropped to $3, they would sell these borrowed funds back to the owner, pay the owner a small amount of interest, and profit the difference-in this case, $2 per share.
Market watch amc movie#
This included a combination of factors – no one going to movie theaters during the pandemic, new movies being released on streaming platforms the same day as their theatrical release, and a more enjoyable movie-watching experience at home.Īs a result, these hedge fund managers borrowed shares from other investors who owned the stock. Hedge fund managers believed the stock was overvalued for a variety of reasons. Before this stock became popular with the meme crowd, it was trading at around $5 per share. Shorting is risky because there is no limit to how high the stock price can go, and you can lose a lot of money if it goes up instead of down.įor example, let’s look at a classic short stock, AMC Theaters. They get their shares back, and you pocket the difference. To do this, you borrow shares of the stock from somebody else, sell them and hope to repurchase them at a lower price so you can return the shares to the person you initially borrowed them from. When you short a stock, you’re betting the stock price will go down. If this sounds like something that interests you, here is a listing of the most shorted stocks for October 2022.
It’s a very risky move, but if done correctly, it can pay off in gains of 100% or more in a short period. By taking a position in one of these stocks, they hope to squeeze the short seller and cause a massive run for the stock.
With the rise of meme stock trading during the pandemic, some retail investors now make it a point to know the most shorted stocks.
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