Anavex Life Sciences Corp (AVXL)

[JoyousTraveller]

Raja,
One way to evaluate the Short's pain threshold is to examine the distribution of call options by date and strike. As most of you know, calls protect Shorts from big price moves up. Shorts exercise calls (bought at low cost per share) to provide stock to cover their short position.

Most participants on this website have already observed/experienced the cycle enjoyed by Shorts as Biotech stock prices swing. Shorts let fundamental buyers/enthusiasts buy, raising the price, then short and cover at lower price; cycle repeats.

Once AVXL price moves above the strike of calls owned by the Short, the Shorts start loosing money. As the stock price rises, the premium cost of calls rise. As calls are exercised and call premiums rise, shorts race to buy more AVXL shares before covering becomes even more expensive -- the Squeeze is on.

Those are some of the mechanics. The catalyst to begin raising the share price that might initiate a squeeze can be anything from hard news like a surprising FDA approval to a baseless rumor (or Reddit push).

The Shorts who are slow to cover as the stock price rises and/or with fewer calls then required to cover are Looooosers.

For those of us who are Investors, it's critical to know what triggered the Squeeze and what is the "correct market value" of AVXL. At what price should we sell; should we hold. If the Squeeze goes higher than my view of the fair market value at that point in time, I'll bail with the hope of buying back in at a lower price suitable for an Investor. Discipline will be critical in the event of a squeeze even for dedicated long-term Investors in Anavex. Investors can ride out a squeeze without selling or buying while the share price booms above fair value only to drop and eventually settle at fair value. Or, even an informed Investor can profit by selling at a price well above fair value; pocket taxable profit and replace the position at a lower price. Good luck.