![]() ![]() Stash recommends following the Stash Way, which involves investing for the long term, investing regularly, and diversification. Remember, all investing involves risk, and you can lose money in the market. We believe in time in the market, not timing the market. Follow the Stash WayĪt Stash we don’t believe in speculative investing. And in fact, investment bank Goldman Sachs’s list of the most shorted stocks is reportedly up 25% in 2021, showing that shorting activity has increased dramatically this year. The smartphone maker Blackberry and entertainment giant AMC have likewise been the subject of squeezes in January, 2021. Blackberry, Gamestop, and moreĬompanies that have been involved in investor short squeezes in recent months include the video game retailer GameStop. That can also lead to continued increases in that stock’s price, and the risk of increased volatility. Options trading can get complicated, but essentially in this scenario it means investors purchase a contract for a particular stock at a specified price, often much lower than the current trading price of the stock in question. While there’s nothing illegal about this practice, in recent months short squeezes for various companies are reportedly being driven by small-time investors involved in options trading. These investors may not be buying based on fundamentals, and are simply bidding up the stock to create problems for short investors. Sometimes, although not typically, investors band together to buy a company’s stock, driving it ever higher. In that case, the stock price may start to head up, and a short squeeze may begin. Let’s say that company instead announces that it has a new product line and revenues are going up. Imagine a company that is heavily shorted because many investors believe that the company’s revenue will decrease significantly. Usually a short squeeze happens when a company announces surprisingly good news. This “squeezes” other short sellers, who are also then forced to cover their shares, and the cycle continues. ![]() As they begin to buy the shares, it forces the stock to go even higher. Short sellers are forced to buy the stock back at higher prices. This can make the company vulnerable to something called a short squeeze.Ī short squeeze happens when the stock price of a heavily shorted company starts to increase. In that case, investors are betting the stock will go down, and a significant percentage of the company’s outstanding stock is sold short. Sometimes a large group of investors might believe that a company’s prospects are not good, and take very large short positions in the stock. At Stash, we believe that shorting is best left to the pros, so we do not offer this to investors. There are lots of SEC rules and limitations on margin accounts-and plenty of risk. Short selling requires what’s called a margin account with a broker. However, if the share price is higher, the investor will lose money. At that point, the investor buys back the shares at the cheaper price, returns them to the broker-and pockets the difference (minus interest charged by the broker). This tactic involves borrowing shares from a broker, selling them to someone else, and betting that prices will drop before they decide to buy it back. In simple terms, it allows an investor to sell a share at the current price, while requiring them to buy the shares at some point in the future at an unknown price. It’s basically betting against a stock, and it’s a key technique used when an investor believes that the price of a stock will be lower in the future. Typically when you buy a stock, you create a “long” position, meaning you purchase it at its current trading value. If you’re wondering what that means and how it can affect stock prices, we’ll explain it. In recent weeks you may have heard of something called a short squeeze. ![]()
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