Investors who are being intellectually honest with themselves, however, have to concede that the odds of AMC shares moving meaningfully higher again anytime soon are very low and are shrinking. Although another short squeeze is unlikely, anything's possible. It hasn't even helped stave off the stock's big pullback since its September high. Notably, all the buying that's necessary to cover these short trades has clearly not buoyed the stock. The 83.4 million shares shorted as of late November was the lowest since September's high of nearly 100 million, extending a trend that's been underway for a while. The other - and perhaps bigger - reason a short squeeze is becoming more unlikely is that the short interest in this stock is falling. There's plenty of room for it to fall, which is mostly what it's been doing the past few months. And, even the few short sellers who are willing to take such a risk are starting out with a big advantage that wasn't in play back in June - that is, the stock's current price is about twice as high as it was then. The short sellers that were caught with their proverbial pants down just a few months ago aren't likely to walk into the same trap again. One of those reasons is that this sort of trading gimmick only tends to work out when nobody's expecting it. Short interest began to climb again in July, hitting a second peak in September.Ī repeat performance of the previous short squeeze, though, just isn't in the cards for a couple of reasons. The thing is, some (though not all) investors have continued positioning for another short squeeze in the meantime. Take a look at that period in the chart below, which compares the stock's price to its short interest during the past 12 months. The stock's short interest - the total number of shares sold short at any given time - began to fall the next month, indicating that many of those short sellers had indeed exited their positions, suffering big losses. In just a matter of days in late May and early June, shares of AMC soared from about $12 to more than $60. Realizing the COVID-19 pandemic had spurred a huge amount of short selling of the stock, individual traders coordinated an effort to force short investors to buy the stock to cover their short positions. That's what happened to AMC shares earlier this year. The prospect of a short squeeze, of course, encourages speculative investors to hunt out stocks that have been heavily shorted some of them will even coordinate a buying effort to induce a short squeeze. Once the cycle gets going, it can really drive a stock upward, translating into huge losses for short sellers but big gains for those investors who hold the stock. Their buybacks push a stock even higher, causing even more increasingly nervous short sellers to head for the exit. Their buying nudges shares even higher, prompting another tranche of short sellers to do the same. A short squeeze is just a scenario where a little bit too much bullishness makes short sellers nervous, so they'll buy the stock back at any price just to exit that trade. The thing is, there's no cap on how high a stock's price can climb. That's because a short trade can only be closed out by buying back those shorted shares. Although your risk on a stock owned outright is just the dollar amount invested in that company, the risk of a short trade is theoretically infinite. See, unlike the more conventional process of a buying a stock at a lower price and then selling it at a higher price in the future, short sellers sell a stock at a higher price now with plans to buy it back, or "cover," at a lower price later. That buying effort is supplied by that stock's short sellers in an effort to quickly close out a trade that's losing money. If you're not familiar with the term, a short squeeze is a way of artificially inducing the buying of a stock that drives its price upward.
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