“Short Squeeze”

Today after the close Google will announce their earnings. Google is the last of the FANG stocks and we are nearing the end of earnings season. So far today all FANG stocks (Facebook,Amazon,Netflix & Google) are up in anticipation of a good Google report. If Google hits it out of the park, I think all FANG will follow, including Amazon. Keep your fingers crossed for a big earnings beat.

As you might know I’ve been watching from the sidelines waiting for this market to move in a more steady manner. Hopefully with earnings coming to an end Wall Street will find some good with our economy. While I’m on the sidelines let me get a little lesson in. Grasshopper, today I’d like to talk about a “Short Squeeze.” I’m bringing this up because there was talk that Friday’s big raise in the market was due to a Short Squeeze. Before I get into Short Squeeze we must define and understand what being Short is, or what Shorting a stock is.

Short Selling is when you borrow shares of a stock from your broker and sell them. You do this when you think the stock is going down. The shares are sold and the proceeds are credited to your account. Sooner or later, you must “close” the Short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy the stock at the lower price and make a profit on the difference. Shorting is when you sell before you buy. If I buy first and the stock goes up, I sell and make a profit. When Shorting, I sell first in hopes the stock will go down and buy at a lower price for a profit. Either way, you profit when you buy low and sell high. Please read my page called “Long & Short Positions.”

When stock prices start to rise rapidly, short sellers want out. This is because an investor who shorts stock only profits when the stock goes down. To get out of a Short position you must buy the stock to close the position. Buying the stock causes the stock to raise. The Short Squeeze is a situation in which a heavily shorted stock moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward move of the stock. A Short Squeeze implies that short sellers are being squeezed out of their short positions, usually at a loss.

The reports I read insinuated the big move in the market this past Friday was caused be a Short Squeeze. Since the beginning of the year many stocks were down which enticed many investors to sell short with the idea the market would continue down. When the market starts to move up the short sellers start to buy the stock to cover their short position. The more this happens it starts to snowball and the result is a Short Squeeze. This could be the cause of all the recent up 300 days after a down 300 day.


 

 

I have a few “Contributing Writers” waiting to write some articles on their expertise. I was waiting for a few more subscribers. We started the 1st of the year and we now have 29 who signed up for the email. We have many more who are finding the site but I would like more subscriber. Please pass the word to anyone you think might be interested in Main Street beats Wall Street. I really want to get these talented writers to work but I want to give them a nice size audience to work for.

 

You might hear from me again after the close today to give you my feelings on the Google earnings.

 

 

Steve

The Options Coach

 

 

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