A short squeeze can occur when the shares short as a percentage of float exceeds 10%, and the days to cover is greater than 3. A catalyst event causes a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. As a result, short sellers have to buy-to-cover their short positions as the pressure to sell mounts and they are squeezed out of their short positions, usually for a loss.

A popular free tool to look up the short interest and days to cover in a stock is the Nasdaq Short Interest site at http://www.nasdaq.com/quotes/short-interest.aspx

<< Back to Glossary Index