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Replies to post #4705 on Solaris Power Cells Inc (fka SPCL)
A short sale reverses the normal
buy first/sell second sequence
as a way to profit from
an anticipated future fall in price.
An investor borrows shares of SPCL from a broker
and sells them at the market price.
The investor hopes to buy back the shares
at a lower price in the future,
thereby "covering" the position
by giving back the broker his shares.
Instead of the traditional "buy low/sell high",
an investor seeks to "sell high/buy low".
A short squeeze occurs
when the stock's price doesn't decline as anticipated.
For example,
let's say you sell short SPCL stock at 0.0004
But, instead of the price going down,
it goes up to 0.001
and appears to be going higher.
Now you're in trouble.
You need to cover your position and limit your losses.
You decide to buy SPCL shares as soon as possible
-- you and everybody else who shorted the stock.
This generates tremendous buying pressure on the stock,
and the short sellers rushing to cover their positions
only escalate the price increase.
Short squeezes
occur more often in small-cap stocks with small floats,
but they can occur with any stock.
AI
