Short Squeeze

A short squeeze is a rally amplified by forced buying from short sellers. As price rises, shorts sit on growing losses; when the pain or the margin department forces them to buy back shares, that covering is itself demand, which pushes price higher and squeezes the next tier of shorts.

The precondition is crowding. High short interest (measured as a percent of float), high days-to-cover, and hard-to-borrow status all signal that a lot of covering could be triggered at once. The ignition is usually a catalyst the crowd bet against — a surprise earnings beat, an approval, a buyout headline.

Squeezes end when the covering is done. Without fresh fundamental buyers behind the shorts, price tends to retrace most of the spike, which is why late entries into a squeeze carry some of the worst risk-reward in trading.