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]
In This Article...
The Volkswagen short squeeze cost how much?
A hedge fund or trader may decide to short the stock if they think the shares of a company are overpriced. As was already mentioned, a trader who is shorting a stock does not actually own the shares; rather, he is committing to return them to his broker at a later time.
As a result, he purchases the shares on credit and then sells them. He buys them again at the reduced price and returns them when the price drops.
Volkswagen’s price did not fall, but hedge funds and other short-sellers were forced to acquire shares at a loss in order to uphold their agreement. Short sellers are thought to have lost approximately 30 billion ($38.33 billion) as a result of the VW short squeeze.
What was the 2008 VW short interest?
Rewind to 2006 when Porsche announced unexpectedly that it wished to grow its stake in VW. To do this, they made massive investments and bought a ton of VW stock. Naturally, the stock price began to increase consistently over time.
What should one do in this circumstance? In fact, the hedge funds did just thatthey shorted it to death. Hedge funds were keeping an eye on the stock and decided it was significantly overvalued, so they started shorting it in the hopes that it would eventually fall.
Short positions exploded towards the end of 2008. The shocking fact was that Porsche owned 43.3% of VW shares, 32.2% of VW options, and 20.2% of VW stock. As you can see, there was not much left that anyone else could buy.
Simply put, it meant that the actual available float decreased from 45% of the whole number of existing shares to just 1% of the total number of outstanding shares. Furthermore, the 12.8% short interest that appeared to be “modest” actually resulted in a severe supply and demand imbalance. Thus, despite the fact that there were simply no shares available for sale, millions of shares needed to be purchased right away.
The Fallout of the VW Short Squeeze
According to Porsche, they “decided to make this notification after it became apparent that there are by far more short positions in the market than anticipated.
Porsche had also made this announcement on a Sunday when the market was closed, no surprise there. Because of this, short-sellers would have zero ability to cover their positions until the market reopened, the announcement caused a mass panic for the exits by anyone who was short shares of VW. Despite the disarming choice of wording, Porsche’s statement had precisely the effect we expected.
Due to this discrepancy, short sellers scrambled to acquire additional shares to cover their bets, pushing up the stock price even further until October 2008it is currently sitting slightly above 900 and once went beyond 1,000 in intraday trading.
Ironically, at a time when industry vehicle sales were doing extraordinarily poorly, hedge funds that had been shorting VW lost close to $30 billion while Porsche profited billions.
The Volkswagen short squeeze was what?
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 compromise did Volkswagen make in 2008?
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.
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.
The duration of the VW brief squeeze.
By Sunday, October 26, word had spread that there were fewer than 6% of VW voting shares still on the market. 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.
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.
How long did the short squeeze at Gamestop last?
There are hundreds of short squeezes per year on average, with more during periods of market turbulence, but the GameStop squeeze stands out due to its length and the apparent lack of significant positive newsflow from the company.
Length
We didn’t anticipate the GameStop short squeeze to continue for as long as it has. The greatest price surges frequently occur overnight during the regular one- to two-day short squeeze. Since at least two weeks ago, if not more, GameStop has been generally rising with some significant swings throughout trading hours. The fact that the regulators’ and brokers’ interventions are so out of the ordinary may be what’s fueling that.
Newsflow
Second, short squeezes are typically a response to a good news story. A brief squeeze frequently requires additional components as well, although a good news release frequently comes first.
Naturally, GameStop did reveal information about holiday trading and a board shuffle on Monday, January 11, but the stock essentially traded flat the following day. The stock didn’t start to increase significantly until Wednesday, January 13. It persisted for the next two weeks without any apparent update from the company. That is strange.
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.
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.