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 following 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 long did VW maintain its $1,000 price?
J. Hill and James J. Hill in May 1901. P. Morgan and E. fought. Control of the Northern Pacific Railway was transferred to H. Harriman. 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 prevented the subsequent stock market meltdown, known as the Panic of 1901, to some extent .[10]
The shares of Volkswagen AG 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 an attempted takeover by Porsche. [11][12] At the time, Porsche CEO Wendelin Wiedeking was accused of market manipulation but was found not guilty by a Stuttgart court. [13][14]
2012 saw the U.S. In connection with a short squeeze on a number of high-yield bonds issued by MAAX Holdings, the Securities and Exchange Commission filed a market manipulation charge against Philip Falcone. 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. Bond prices spiked sharply. The short sellers could only cover their positions by getting in touch 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, a short squeeze on GameStop shares occurred[18][19] that was primarily sparked by the Reddit forum WallStreetBets.[20][21] As a result of this squeeze, the share price on the NYSE reached an all-time intraday high of US$483 on January 28, 2021.[22][23] This squeeze attracted the attention of numerous news outlets and social media platforms .[24]
What was Volkswagen’s peak market value?
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.
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.
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 duration of a brief 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.
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 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.