Short interest ratio

Short Squeeze ( english squeeze: scarcity, congestion, terminal) is the shortage of supply of a security ( usually a share) ( " shorted ") was in large numbers sold short before. After the short selling the resulting open positions must be closed again. Rises now - contrary to the expectation of short sellers - the market price of the security, so must mitigate losses many short sellers simultaneously buy back the securities, which can lead to excess demand, which further drives the price up and the losses of short sellers further increased. Theoretically, therefore, have a short seller unlimited high risk of loss.

An example for such a short squeeze is the price explosion of the Volkswagen ordinary shares, which began on 27 October 2008. On 26 October 2008, the company had informed Porsche that it had increased its stake in VW from 35% to 42.6 % and that it had secured over other options 31.5%, making it at full exercise of the option to a total share of 74, 1% come. Speculators, particularly hedge funds had, but set to falling prices and VW ordinary shares sold short. Since the state of Lower Saxony held an additional 20 % of VW shares, remained less than 6% of VW shares freely tradable. The short seller had 12% of VW shares borrowed, they had to buy for the return of the loan on the equity market. So they put in a short squeeze.

By closing out their short positions exploded the price of VW common stock and increased within two days of around 200 EUR to 1000 EUR (see chart at right). The passing on falling prices investors now had big losses. VW was briefly the company with the largest market capitalization.,

Another example of a short squeeze was July 16, 2008 for bank stocks on the U.S. stock market, after the U.S. Securities and Exchange Commission had the rules on short selling of shares tightened. Some stocks had daily gains of 20 to 30%, without the news situation had changed.

Swell

• Financial market