Yesterday, following the release of a shareholder letter from the CEO, ProGaming Platform’s stock rose more than 16% on strong volume of nearly 300,000. With the exception of Tuesday of this week, it was an all-time volume record. But investors should note that the majority of the shares traded were shorted. Keep reading to learn why this is important.
When investors short a stock, they are simply selling stock they don’t own with the promise of buying the shares at a later time. The investors hope to buy the stock back at a lower price so their trade makes a profit. However, if the stock only goes up from the price they sold the borrowed shares, these short sellers will eventually panic to buy back the shares as quickly as possible at any price. If the stock rises high enough, brokers will even close out the positions for them.
This situation is called a short squeeze. At some point, short sellers must buy stock to close out their short positions and cut losses, which results in a further increase in stock prices, compelling even more short sellers to cover their positions. Investors should pay attention to the number of shares sold short relative to the average daily trading volume–those with high short-interest ratios are often more susceptible to a squeeze.
Click the following link to view the significant increase in short positions being taken: http://ow.ly/9HhBy
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