Due to this pressure, the share price on the NYSE rose to an all-time intraday high of US$483 on January 28, 2021. Numerous news outlets and social media sites covered this squeeze.
In This Article...
How high was Volkswagen able to wiggle?
Strange things happened during the 2008 global financial crisis. Volkswagen experienced a brief period of pressure and briefly surpassed all other businesses in the world.
Because of its heavy debt burden and exposure to the credit and economic cycles back then, when the majority of the world was still suffering from the great recession, Volkswagen became a target for short-sellers.
The Volkswagen short squeeze was caused by a number of events. Porsche SE, a holding company, owned a sizable portion of Volkswagen shares, and the German government also owned a sizable portion.
As a result, there weren’t many shares available for trading on the Frankfurt stock markets.
As soon as there were rumors that Porsche intended to increase its ownership of VW, traders flocked to the stock.
Porsche denied the allegations, saying that in addition to its existing 44% interest in Volkswagen, it had also purchased a 31% holding through the use of cash-settled call options.
Since the German state of Lower Saxony owned the remaining 20% of the stock, there were barely fewer than 6% of VW shares accessible for trading on the market.
Many hedge funds and short-sellers speculating on a lower price for VW stock were taken off guard by the revelation. Since the hedge funds had borrowed 13% of the shares of VW and sold them short, Porsche had the upper hand. With only less than 6% of the shares available, this means the hedge funds had to repurchase 13% of the shares.
The stock rose from 210 to more than 1,000 in just two days as a result of their race for the few remaining VW shares. The intense pressure compelled short-sellers who had bet that VW would decline to purchase the shares at steadily rising prices in an effort to cover their short holdings.
As a result, Volkswagen’s market value increased to $370 billion in just two days, making it the most valuable company in the world.
ExxonMobil (NYSE: XOM), the then-number one business in the world, had a market worth of $343 billion at the time, but VW’s hefty valuation was higher.
What was the 2008 stock rate for Volkswagen?
Volkswagen’s Frankfurt, Germany-listed shares more than quadrupled in value in just two days in October 2008, briefly making it the largest company in the world. Following Volkswagen’s peak on October 28, 2008, the stock sank 58% in four days. A month later, the stock had dropped 70% from its peak, recovering much of the loss experienced during the squeeze.
How much money did VW make in 2008?
In October 2008, German automaker Volkswagen briefly overtook Apple as the most valuable corporation in the world with a market capitalization of over $370 billion. Porsche’s disclosure that it had essentially taken control of 74% of Volkswagen’s voting shares caused the share price of Volkswagen to soar. Exxon Mobil had been deposed by Volkswagen, which was established on May 28, 1937, to take the title of most valuable firm.
What is the tightest ever short squeeze?
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 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-$343 Mobil’s 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 unseat Toyota from its position 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.
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. This momentarily made VW the most valuable listed corporation in the world.
When did the VW short squeeze occur?
In response to Porsche’s announcement that it had expanded its stake in Volkswagen, the short squeeze began on October 26, 2008. The worst of it was over in a few of days. Soon, word spread that only 6% of Volkswagen shares were available for trade due to Porsche’s increasing shareholding in the company, despite the need for approximately 12% shares to cover open short positions.
Porsche released about 5% of its Volkswagen shares at exorbitant prices after the stock price reached its peak, allowing short sellers to liquidate their bets. The stock crashed after October 28 and lost more than 58% of its value in the following four days. The stock had dropped 70% from its peak a month later.
However, short sellers faced significant losses as a result of being stuck between the market’s tight supply of shares and rising share prices. Hedge firms reportedly lost over $30 billion on their short Volkswagen holdings, according to some estimates.
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.
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.
How did the VW short squeeze turn out?
They don’t last with brief squeezes, as you are aware. It was predictable what would happen next. Within four days, the price of the shares dropped by 58%, and within a month, it had dropped by 70% from its October 28th peak. It was a traditional short squeeze pattern, according to Lindsey Bell, chief investment strategist at Ally Invest.
With any short squeeze, we observe a sharp price increase followed by a sharp decline in popularity. Additionally, when there is a squeeze, everyone attempts to sell at once.
However, all squeezes often end in the same way, with the stock often just returning to the point where its flight began. Most hedge funds were aware of this and kept their positions throughout the turbulence. They received significant compensation when the stock fell 70% in a single month as a result of this.
Minute Takeaway
- The price of a VW doubled in just two days. As a result, short sellers lost tens of billions of dollars over the course of a few days.
- Porsche acquired so much Volkswagen shares in 2008 that it drove up the price of VW stock.
- The stock’s price decreased by 58% in four days.
- A short squeeze is likely to occur in an actively shorted stock with a high short float and days to cover ratio.
- When hedge fund shorts on GameStop were squeezed, a similar phenomenon occurred. It ultimately cost them billions.
- $30 billion was lost by hedge funds during the VW crisis.
A Striking Similarity to GameStop
The 28th of January 2021 will go down in history as a significant day for the video game retailer GameStop. Prices in 2020 stayed in the $10 to $15 range. In 2021, prices increased by 400% in a single day to $483. For that, you can thank the WallStreetBets thread on Reddit.
Despite the firm’s substantial short interest, retail traders coordinated an attack on big money by raising the price of the shares. Indeed, GameStop’s price dropped quickly to the $40 area, following Volkswagen’s example. In a week, everything.
VW Short Squeeze Bottom Line
Some of the greatest short burns of the century were ones we witnessed. Although short selling is a fantastic technique to generate big gains, it is not for the inexperienced or weak-willed. This is due to the fact that a short sale has a lot of potential pitfalls.
Making sure you’ve done your homework is the most crucial thing you can do. You don’t want to end up on the wrong side of a trade because this kind of trading is a very tricky game. Allow us to assist you in your trading endeavors. To get you started, we provide thousands of dollars’ worth of free courses and videos.
The duration of the VW brief squeeze.
Do you recall the Volkswagen short squeeze scandal from 2008? The company’s value was 58 percent lower than its peak value at the end of the four-day event. Following that, it took hedge funds several weeks to get back on track.
What is a stock market short squeeze?
When a stock rises in price and short sellers choose to close out their short positions or are compelled to do so by margin calls, the situation is known as a short squeeze. As these short sellers purchase the stock, the price increases, possibly forcing additional shorts to cover. This starts a vicious cycle where the stock rises even higher. In theory, a stock can soar as high as it wants.