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.
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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.
What reached its pinnacle for VW in 2008?
But much of the harm had already been done. After VW’s stock price peaked on the 28th, the short squeeze somewhat eased, and the stock fell by 58 percent in just four days. A month later, it had fallen by 70 percent from its peak.
How quickly did the Volkswagen stock rise?
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 historical short squeeze is the biggest?
Volkswagen shares saw the largest short squeeze in history in 2008. The automaker’s prospects first appeared bleak, but when Porsche announced a majority ownership, the situation abruptly changed. The share price spiked as short sellers rushed to close out their holdings, making VW temporarily the largest business in the world.
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 closely 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.
When was VW under pressure?
In 2008, when Porsche launched an unanticipated sequence of operations that resulted in it controlling a sizeable portion of Volkswagen’s (VW) stock, the largest short squeeze in history occurred. VW momentarily became the most valuable publicly traded corporation in the world as a result.
Can I buy VW stock?
From a financial standpoint, purchasing Volkswagen seems like a good deal. Volkswagen produced EPS of 37.24 in 2021 while trading at a price-to-earnings ratio of 5. The company also reported 296 billion in revenues, an increase of 12.3% year over year, and 45.2 billion in cash from operations. Volkswagen’s EBITDA margin varies between 18.5% and 5.5%, and its net income margin is roughly the same. Notably, Volkswagen made significant R&D investments in 2021, depreciating 16.1 billion and capitalizing an additional 10 billion in CAPEX. Volkswagen had 73.7 billion in cash and cash equivalents at the end of the fiscal year 2021, while it had 229.1 billion in total debt.
The future of Volkswagen seems promising. According to the majority of analysts, Volkswagen will reach the revenue milestone of $300 billion by 2023. However, it’s expected that EPS will remain below 2021 levels, at under 36/share.
What caused the Volkswagen squeeze?
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.
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[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.
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[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]
Why is VW stock trading so low?
recent income (Q4 2021) Volkswagen informed investors during their most recent earnings call that the Automotive group’s vehicle sales have decreased by 6.2% as a result of the Covid epidemic and a global semiconductor shortage.
How long did the Volkswagen squeeze continue?
Have you heard of the 2008 Volkswagen short squeeze? It was four days long and dropped 58% from its peak. It took weeks for hedge firms to recover from it. It might have seemed suspiciously familiar to those of you who have been keeping up with the GameStop hoopla over the past few weeks. That is because it has already happened. You would be familiar with the 2008 VW short squeeze if you had been present. To avoid getting ensnared in the notorious short squeeze, we must first discuss short selling.
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 Amazon’s stock?
Since 1997, Amazon has maintained a daily share price chart and data that has been split-adjusted. As of August 30, 2022, Amazon’s shares had a most recent closing price of 128.73.
- On July 8, 2021, the closing price of Amazon shares reached an all-time high of 186.57.
- The 52-week low stock price for Amazon is 101.26, or 21.3% less than the current share price.
- The 52-week high of the Amazon stock is $188.11, which is 46.1% more expensive than the current share price.
- The 52-week average price of Amazon stock is 148.37.
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.