James J. Hill, J. P. Morgan, and E. H. Harriman engaged in a power struggle over the Northern Pacific Railway in May 1901. By the close of business on May 7, 1901, the two parties held over 94% of the shares of Northern Pacific that were still in circulation. Third parties shorted Northern Pacific in a frenzied manner as a result of the subsequent runup in share price. On May 8, it became clear that NP shares that had not been committed would not be enough to cover the open short bets, and neither Hill/Morgan nor Harriman would be ready to sell. As NP “shorts” sold off holdings to obtain money to buy NP shares to fulfill their obligations, this caused a sell-off in the rest of the market. A truce between Hill/Morgan and Harriman helped to lessen the impact of the impending stock market meltdown, sometimes known as the Panic of 1901. [10]
Volkswagen AG’s stock on the Xetra DAX rose from 210.85 to over 1000 in less than two days in October 2008 as a result of a short squeeze brought on by a Porsche takeover attempt, briefly making it the most valuable corporation in the world.
[11]
[12] A Stuttgart court cleared former Porsche CEO Wendelin Wiedeking of the charge of market manipulation. [13] [14]
In connection with a short squeeze on a number of high-yield bonds issued by MAAX Holdings, the U.S. Securities and Exchange Commission charged Philip Falcone with market manipulation in 2012. Falcone bought the whole bond issue after learning that a company was shorting the bonds. He also extended a loan to the short-sellers of the bonds, and upon their sale, he later purchased them back. Because of this, his overall exposure was greater than the value of the entire MAAX bond offering. Falcone immediately stopped lending the bonds, making it impossible for short-sellers to cover their bets. The bonds’ cost increased sharply. [15] [16] The only way for the short-sellers to close out their bets was by speaking with Falcone directly. [16]
In November 2015, bankrupt biotech KaloBios (KBIO) experienced a short squeeze that increased the share price by 10,000% in just five trading days. Short sellers had viewed KBIO as a “no-brainer near-term zero.” [17]
Beginning in January 2021, there was a short squeeze on GameStop shares[18][19] that was mostly caused by the Reddit site WallStreetBets.
[20]
[21] Due to this pressure, the share price on the NYSE rose to an all-time intraday high of US$483 on January 28, 2021. [22] [23] Numerous news outlets and social media sites covered this squeeze. [24]
In This Article...
What was the peak of the short squeeze on VW stock?
With a share price of over 1000 in October 2008, Volkswagen briefly held the title of most valuable corporation in the world. And it all began with a shocking declaration by competing automaker Porsche.
What happened?
Volkswagen and Porsche have a long history of collaboration, and Porsche has constantly had a small interest in Volkswagen. However, Porsche disclosed on October 26, 2008, that it had acquired control of 74% of Volkswagen’s voting shares by purchasing nearly all of the company’s outstanding shares.
Of fact, the global financial crisis had already taken hold by October 2008, and short selling was rife. Only because so much Volkswagen stock (about 12.5%) was lent to short sellers at the time of the Porsche announcement was the Volkswagen short squeeze enabled. These short sellers rushed to close out their positions when the market opened the next day in an effort to limit their losses, which resulted in the purchase of more stock and an increase in the share price.
Volkswagen’s stock rose about 150% on October 27 from its opening price of 348 to its closing price of 517. By Tuesday, the stock had reached its all-time high of $999 per share, with short-selling losses pegged at tens of billions of dollars. Wendelin Wiedeking, the CEO of Porsche, was eventually prosecuted with market manipulation for his involvement in the short squeeze, but the accusations were later dropped.
How far did the 2008 Volkswagen squeeze go?
Short sellers started to panic, and the massive short squeeze caused by the mismatch in supply and demand caused its share price to increase from 210.85 to more than 1,000 in less than two days. On October 28, Volkswagen did, albeit for a very brief period, surpass Apple as the largest business in the world by market value.
Which brief squeeze was the most severe?
Over the course of a single trading day, Volkswagen became “the world’s priciest corporation,” in one of the largest short squeezes in history. Prior to this significant increase, it was widely assumed that Volkswagen was a privately held company.
Since the market was extremely pessimistic about its prospects, a disproportionately large number of short sellers targeted the stock, which ultimately suffered as a result. Then, on October 28, 2008, the automaker Porsche abruptly declared that it now owned 74.1% of Volkswagen, which it had only recently purchased through derivatives trading. Following Porsche’s unexpected takeover of Volkswagen’s operations, both institutional and retail investors rushed to cover their short holdings.
As a result, some of the company’s shares reached over $1,000, briefly making Volkswagen the largest business in the world by market capitalization. The price of the company’s shares increased by more than 93% at the day’s peak.
Porsche was accused of concealing its investing activities in January 2010 by a number of investment funds, including Glenhill Capital LP, Elliott Associates, Elliott International, the Liverpool Limited Partnership, Perry Partners, Perry Partners International, and Elliott Associates.
The accusations against Porsche and its former CEO and CFO were dropped before the year was up.
How high can you squeeze a short one?
If you short a stock at $10, it cannot go below zero, thus your profit on the deal is limited to $10 per share. However, there is no cap on the stock. You can be required to buy it back at $20, $200, or $2 million after selling it for $10. A stock’s potential height is unbounded theoretically.
What is the all-time high of Volkswagen’s stock?
Many people are concerned about Volkswagen’s future due to internal conflict with its new owner Porsche, but corporate executives claim such concerns are exaggerated. Just today, they issued a statement of cooperation that seems to have ended the conflict. Whatever the situation, the stock markets are sure that the company will thrive. Yesterday, VW’s shares momentarily reached 1,005 ($1,261), making it the most valuable corporation in the world with a market cap of about $369 billion, temporarily surpassing Exxon-Mobil’s $343 billion market cap.
With a market value of $127.5 billion, Volkswagen AG has the highest market value of any automaker in the world, surpassing even Toyota’s valuation by around $3 billion. This is in part because Toyota’s stock price has dropped to a four-year low, down 56% from its peak in February 2007. Following Monday’s announcement of Porsche’s new 42.6% stake and 74.1% control option in VW, the valuation recently increased. VW’s stock price ended yesterday’s trading session at $675 ($847), up 33% on the day, but not by enough to maintain its position as the greatest market capitalization corporation in the world.
According to the experts, VW’s past valuation success was a result of its effective hedge-fund trading methods. It most definitely wasn’t a result of the company’s U.S. vehicle sales methods, as recent attempts in the largest car market in the world have been, at best, middling. However, a renewed push aims to change the tide and put VW on the right track to oust Toyota from its status as the most productive automaker in the world. In any case, VW has stated that Toyota is its sole significant rival on a worldwide scale.
Along with a boom in new models, VW’s U.S. plans include building a new auto assembly factory in Chattanooga, Tennessee. The first product made at the $1 billion factory will be a midsize vehicle made particularly for the North American market. The vehicle is being developed to compete with the Honda Accord and Toyota Camry and is anticipated to be based on the Passat. A new mid-sized SUV that would fit in between the Tiguan and Touareg models now on the market might also join it, while Audi CEO Rupert Stadler has also made suggestions that some Audi models might be produced there in order to minimize swings in the euro-to-dollar exchange rate.
How long did the Volkswagen stock decline last?
In the same month thirteen years ago, the Frankfurt-listed shares of Volkswagen increased by more than four times in only two days, briefly elevating the German automaker to the position of most valuable firm on the planet.
In the four days following the stock’s peak on October 28, 2008, it fell 58%, and by September of that same year, the shares had fallen 70% from their peak, giving up the majority of the squeeze.
Even though the Volkswagen short squeeze occurred more than ten years ago, day traders might still benefit greatly from this particular stock market incident.
Let’s examine the meanings of “short selling” and “short squeeze” before delving into the 2008 VW short squeeze.
What stock gained the most in value in a single day?
With a rise of 2,112.98 points on March 24, 2020, the Dow Jones Industrial Average (DJIA) experienced its greatest single-day increase in history. This happened around two weeks after the biggest one-day point loss, which took place on March 9, 2020 and was brought on by the mounting concern about the global coronavirus outbreak.
30 major firms that are traded on the New York Stock Exchange make up the DJIA index. Financial analysts regularly monitor this figure, viewing it as a leading indicator for the US economy. Knowing when these significant gains and losses take place can provide light on the potential causes of these oscillations. Those in 2018 are definitely indications of increased market volatility, whilst those in 2009 are probably adjustments following significant losses during the Financial Crisis.
Even though the DJIA is frequently watched, it only provides information on the performance of thirty of the biggest American corporations. An index like the S&P 500, which tracks 500 companies, can provide a more thorough picture of the American economy. This merely represents investment, though. Consumer spending and the unemployment rate, for example, are not adequately represented in stock market indices.
How many days are there in a short squeeze?
Once the short squeeze has started, you can trade on it using our derivative products on our Next-Generation trading platform, including spread bets and CFDs. With derivatives, you merely speculate on the underlying share’s price swings rather than really owning it. Unlike leveraged products, which allow traders to place a small deposit of the full value and receive full exposure to the market, traditional share trading requires you to buy and assume ownership of the stock. Keep in mind that trading on leverage carries a significant risk, and losses can quickly outpace gains.
You should look at the short interest ratio of a security to discover if it is extensively shorted. Various websites offer this kind of information, and a short interest of above 20% signals that it is favorable to stock shorts and may soon result in a short squeeze.
If they can anticipate market moves and open reactive buy and sell positions, retail traders can profit from a short squeeze. Another way to put it is that the company whose stock is being shorted might gain since investor interest raises the share price. It can be extremely harmful and result in significant losses for institutional traders and hedge funds that have a significant amount of cash invested in a stock, as was the case with the GameStop [GME] short squeeze.
A short squeeze may last a few days or several months, depending on how much stock was shorted. This can be calculated, for example, by dividing the average daily trading volume of a company by the short interest ratio of its shorted stocks. This offers you an estimate of how many days it might take sellers to cover their short positions, however it might be less time if the squeeze is more aggressive than initially thought.