Short Interest Stocks To Watch This Week
Were you introduced to the stock market in 2020 and 2021 when meme stocks surged? At the time, some of the most well-known penny stocks, including AMC Entertainment and GameStop, surged to record levels. The “Fight Against The Hedgies” was waged by retail traders looking to take down Wall Street funds.
The trend didn’t last as long as some would have liked. But at the end of the day, it opened the eyes of traders to a phenomenon called a short squeeze. How do you find short-squeeze stocks? The first step is finding stocks with higher short interest, and in today’s article, we look at a few grabbing attention in the stock market this week.
What Is A Short Squeeze?
A short squeeze happens when investors who have shorted a stock (speculating that the price will drop) are forced to buy shares to cover their positions. This can drive stock prices even higher as short covering joins retail buying creating a snowball effect at times.
Shorting a stock involves borrowing shares from a broker and selling them in the open market. The expectation is that the price will drop. The investor can repurchase shares at a lower price and return the shares to the lender. They end up making a profit from the difference.
However, if the stock’s price unexpectedly rises, those who are shorting the stock will likely experience significant losses. These investors may be forced to repurchase shares in order to cut their losses and return the loan. In some cases, a short squeeze can be caused by company-specific news or developments that cause investors to change their outlook.
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However, it can also be caused by broader market conditions. Examples include a bullish market or fewer shares available to borrow for shorting. The use of leverage can also enhance a short squeeze. It can actually amplify the impact of stock price movements on investors’ returns, like what was seen in GME and AMC stocks.