ERHC Energy Inc (ERHE)

[tryoty]

"Do they HAVE to cover?"

In a buyout scenario, yes. The company ceases to exist when bought so shorts would be forced to cover their position.

If it is a buyin, no, unless their cost to cover exceeds their account balance and the broker forces it. But if someone were to buy into ERHE for $7 that means they think it with appreciate from there. The risk of not covering, even at $20... is $30, $40, etc.

Think of it this way, if someone shorted ERHE 10,000 shares at 0.34 they got $3400 for that sale. If a buyout at $7 were announced they would be facing a cover cost of $70,000. If the stock continued to $14, their cover cost would be $140,000... OUCH!

When you go long in a stock, your loss potential is 100%. When you go short, there is no limit to the loss you could face. That's why panic short squeezes happen.

Hope this helps.