“Short Squeeze”
Today let’s talk about the penny stock short squeeze. This is something that happens a lot in the penny stock game. A short squeeze is definitely more likely to happen in a company with a small market cap and a small float. It is harder for a company with a billion dollar market cap to move than it is for a company with a $75 million market cap.
This is the simple concept of supply and demand. When an investor has a short position in a stock it simply means that they are betting that the company is going to decrease in value. This is not really a long shot with 99% of penny stocks out there!!
When a short squeeze happens in a penny stock, all hell can break loose with the price of the shares. If there is a large short position in the stock and the price of the stock increases, the shorts may be forced to cover. They either want to cut their losses or have to fulfill margin requirements. When the cover the stock, they are actually buying the stock back. This can make the stock jump even further and trigger off more margin calls and creates more buying. It is somewhat of a domino effect.
Take a look at any penny stocks that you own and see if they are on this list and how many shares are short compared to the float.
This is a great penny stocks list for potential investors to take a look at.
Penny and Small Cap Stock Alerts