Understanding the Short Squeeze Phenomenon: The Impact on GameStop (GME) and AMC Entertainment (AMC) Stocks

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The stock market in 2021 witnessed several stocks doubling in price on consecutive days, largely due to the phenomenon known as the short squeeze.
GameStop (GME) stock is a notable example of a short squeeze, with its share price skyrocketing from around $4 in August 2020 to a high of $483 in January 2021.
While short squeezes are not new, the scale of the GME short squeeze, driven by retail traders and options trading, is unprecedented.

Explore the mechanics of a short squeeze, its impact on the stock market, and the role of options trading in the dramatic rise of GameStop’s stock price in 2021.

Understanding the Short Squeeze

A short squeeze occurs when a stock’s price rises sharply, forcing traders who had bet on its price falling (short sellers) to buy it in order to prevent further losses. This buying can push the price up even further, creating a vicious cycle. Short squeezes are typically triggered by positive news about the stock or broader market trends that contradict the short sellers’ expectations.

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15m ago•