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.
When did Volkswagen experience a brief squeeze?
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.
What has ever been the biggest 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.
How long did the Volkswagen Squeeze in 2008 last?
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 much time did GameStop need to squeeze?
The shares of GameStop, an American retailer of video games and gaming accessories, closed at less than $20 per share on January 12, 2021. A series of short squeezes that happened over the course of around 10 trading days caused the stock price to increase by more than 15 times, reaching a high of $500. Similar behavior was observed in the movie theater company AMC Entertainment, where shares increased by 300% on January 27, 2021, finishing at $19.88. At this point, members of the Reddit subgroup Wall Street Bets started purchasing shares.
Short-sellers fell into the trap of a short squeeze as a result of the unheard-of surge in these equities. These erratic price changes were not caused by fundamental variables or company-related news. In order to sustain their pessimistic investment, investors had borrowed money. In the end, they had to choose between losing their money to additional losses or repaying it by purchasing these shares at higher prices.
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.
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.
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.
How much time does a brief squeeze require?
A short squeeze can occur for a number of reasons, but one important factor is that short investors borrowed money to open the position, thus they will need to buy it at some point in the future to cover it.
Important components of a short squeeze include:
- Margin borrowing: As part of the short-selling process, short sellers owe money to their brokerage; if a trade turns out poorly, they may end up owing much more. The broker may require them to liquidate the trade or provide additional equity (for example, cash) to their account to maintain the short position if their margin debt becomes too much.
- A short squeeze frequently requires some sort of catalyst or trigger. A positive earnings report that prompts the market to reconsider the company or a rising stock price that gradually squeezes shorts until it abruptly compels many to flee the market could serve as the trigger. The trigger starts the short squeeze by igniting factors like high short interest, long days to cover, and borrowing by the shorts.
- A self-sustaining cycle: Not all investors can close their holdings at the same time as the stock rises during a squeeze, particularly if days to cover are long. To close the position, they can wind up fighting to acquire stock at any price. Investors who initially believed they could withstand the squeeze may then be obliged to buy, and as the price increases, additional investors are either compelled or inclined to close out.
- High “short interest: The percentage of a company’s outstanding shares that has been sold short is measured by short interest. A stock can be more volatile and require more shares to be repurchased subsequently to cover short positions the higher the short interest level. Short interest in a stock is normally disclosed every two weeks.
- High “days to cover”: Given a stock’s daily trading volume, “days to cover” measures how quickly short sellers could settle their bets. The volatility of a stock during a squeeze increases with the number of days to cover. For instance, it would take 50 days to close the short position on a company with a 100 million share short interest and a 2 million share daily trading volume. In contrast, a typical stock may have fewer than 10 days to cover.
While high-profile squeezes receive a lot of attention when they happen, many stocks undergo brief squeezes throughout the course of an average year as longs and shorts engage in back-and-forth trading.
Who made a Volkswagen short?
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 (free float).
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.