Specific to VATE.
The art of a short squeeze, on the way up and on the way down.
First let's define what a short position is and how it works using an analogy with sunglasses. In this description, sunglasses symbolize stock.
Imagine your friend has a pair of cool sunglasses and you borrow them. Then someone else sees you wearing these borrowed sunglasses and asks to buy them from you for $50. You sell them, search hard and find the same pair at a store for $45 and pocket the extra $5. Then your friend asks for the sunglasses back and you return the new pair you just bought. You've just made $5. That was a successful "short position" trade. However, imagine the same scenario, but when you sell the sunglasses for $50, the very next hour Kim Kardashian is seen wearing these sunglasses. Now when you go out to find the same pair of sunglasses, you have to pay a lot more than $50 because all the stores are charging more for this new hot item. Plus, there's no guarantee they will even be in stock because suddenly everyone is rushing to buy these hot sunglasses. Now your friend asks for them back and you're forced to pay a much higher price so you can return the sunglasses to your friend. Finally you have to pay $75 for the same pair of sunglasses that you sold for $50 and you're down $25.
Now filling in with shares of stock instead of sunglasses, and multiplying that one pair is sunglasses by thousands upon thousands, even millions.
To initiate a short position in the above example, one sold sunglasses they didn't own and had to return them to the original owner when called upon. The example shows how one could make money on their short position, and how one could lose on their short position.
Now let's put this knowledge into play, with respect to trading action In VATE. Yesterday I observed ASCM trying to box in the share price.
When I say box, I mean the area between top bid and the lowest ask, aka the spread.
On the way DOWN:
What ASCM was trying to do is control the price range as they initiated a short position. They sold the ask, and were staying at the highest bid so when any stock was dumped, it was dumped to them. The intent was to sell borrowed shares at the ask and then re-buy them for less money at the bid, return them to the owner, and pocket the difference.
On the way UP:
This didn't work because there was too much buying pressure at the ask and no one was selling. ASCM was being forced to buy and cover their short position, but they weren't able to do this because others kept bidding above them while pressuring the ask.
Now ASCM is staying just outside the box. Do they cover now and take their loss, or keep waiting with the hopes that the price will drop and they can buy back the shares they borrowed and return them to their rightful owner, limiting the upside down position they've created for themselves.
On the way DOWN:
Since ASCM hasn't decided what do do yet...they are sitting just below the bid so if the action starts moving to the downside, they can readjust and just move lower on the bid, still remaining outside the lower part of the box. Simultaneously they will move inside the box at the lowest ask with small lots of 10K shares and keep lowering their ask to give the appearance of selling pressure. This is how ASCM or any short works to bring the price down so they can cover their short position. They only use small lots of 10K shares on the ask while they're working to bring the price down, so if ask pressure comes in at their ask, they're not building a bigger short position for themselves.
On the way UP:
Returning to yesterday's action in VATE and my observations. There was the start of a possible short squeeze in VATE. A short squeeze is when there is a short position that needs to cover, but no one is willing to sell into the bid.
Buying pressure was too strong yesterday and it forced ASCM to stop shorting because they were digging a bigger and bigger hole for themselves. It appears they have yet to cover, and if buying pressure persists, and or shareholders hold their positions, eventually ASCM will need to cover and they will need to buy at whatever price they can, because the original owners will eventually ask for their shares back that ASCM borrowed.
Some have heard of a margin call. A margin call is when the original owner returns asking for their "sunglasses" back. The borrower is forced to return them immediately, or pay whatever price they have to for the same pair of "sunglasses" in order to return them as soon as possilble, or face consequences that no one wants.
VATE has a very limited supply of stock available to trade. The total number of freely tradable shares is called the float, which is 64 million. If all or most of those shares are just being held tightly, and there is a short position that needs to buy shares to cover at all costs, that's when a short squeeze is triggered.
From the looks of it, the float is being held tightly and ASCM has a short position they have yet to cover. Seasoned investors can see this and are likely responsible for helping to lock up the float in strong hands, and simultaneously providing steady pressure at the ask.
Aside from a short squeeze, there are plenty of other reasons, internal and external, that are contributing to VATE's share price appreciation. This post was more about highlighting a short squeeze, than addressing any other forces in play.
All is fair game. If we have a short squeeze, hold on...because short squeezes generally increase the share price significantly. Artificial as it may be, anyone holding a real position wants to see their shares increase in price. And a short squeeze works.
May the art of the short squeeze ensue...
Go VATE
Rec
