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.