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Short Squeezes and Surprises
This is a week of surprises.
You definitely know something is off about the stock market when even your most clueless friend is posting screenshots of investing in hyped companies on Instagram and Facebook.
I am sure you know what I’m talking about for it must be really hard to miss the current craze of the stock market!
Prelude
The apparent stand-out company everyone is talking about is GameStop! GameStop US-based game store retailer which was declining. This meant many hedge funds and investors actually took short positions on their stock ($GME).
How Shorting Works
To short sell a stock, one borrows shares of the stock. This is a bearish move, which means the investor believes that the stock’s value will decrease in value by a certain date. The investor then has to then buy the shares back at the prevailing market value. If the stock price has decreased in comparison to the purchase price, the investor makes a profit and if it has risen above the purchase price, a loss is made.
