Short-Selling Stocks—and Trying to Play Short Squeezes—Can Be Very Dangerous. What to Know.

short selling stocks and trying to play short squeezes can be very dangerous what to know

Sumary of Short-Selling Stocks—and Trying to Play Short Squeezes—Can Be Very Dangerous. What to Know.:

  • But the meme-stock craze—essentially playing the other side of short trades—can be nearly as risky because of the wild swings in share prices.
  • For example, shortseller Hindenburg Research’s claims that Lordstown Motors (ticker: RIDE) had overstated the success of internal efforts to develop battery and fuel-cell capacity for electric trucks helped lead to a federal indictment against its founder, Trevor Milton, and the stock plunged.
  • The resulting feeding frenzy pushes the share price higher, compelling more traders with short positions to cover, and so on.
  • For example, at one point in August 2021, shares of electric vehicle manufacturer Workhorse Group (WKHS) were 35.81% sold-short according to FactSet.
  • At that time, it cost 6% annually to borrow shares of Workhorse from a broker, according to one portfolio manager.
  • Trying to time short-squeezes—the meme-stock craze Let’s turn to a real example of short-selling and short squeezes.

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