What is a Short Squeeze?

A short squeeze is a sharp price spike caused by short sellers being forced to buy. Short sellers profit when a stock falls; when it rises instead, their losses grow with no ceiling, and buying the shares back is their only exit. That forced buying pushes the price higher still — which forces more shorts to buy — in a loop.

Short selling in one breath: borrow shares, sell them now, buy them back cheaper later, return them, keep the difference. The fatal asymmetry: a stock you own can only fall to zero, but a stock you're short can rise without limit, so a short seller's potential loss is unlimited. As the price rises the broker demands more collateral — a margin call — and a short who can't post it is forcibly bought out at market price. The squeeze needs three ingredients: heavy short interest, a spark that starts the price rising, and too few available shares for all the shorts to exit through. Each forced buyer bids the price up onto the next short's pain point, which is why squeezes go vertical rather than drift. The 2021 GameStop episode ran this exact loop in public: short interest above 100% of available shares, a rally, then weeks of forced buying at any price.

A baker signs a contract to deliver 1,000 sacks of flour next month at today's price — without owning any flour yet, betting it gets cheaper before delivery. Then a flood ruins the wheat crop, and he must buy 1,000 sacks at whatever the market asks, alongside every other baker who made the same bet, all bidding against each other for scarce flour. The scramble of obligated buyers is itself what sends flour vertical.