This Short Squeeze Candidate Could Actually Pan Out in the Long Run
Who could forget GameStop or AMC blasting higher in 2021? One of the main drivers of those outsized moves was a short squeeze, which is what can happen when short sellers who are betting against a stock get caught in a wrong-way position.
One stock that Wall Street is bearish on now is Upstart Holdings (NASDAQ: UPST). Upstart has come under scrutiny this year as demand for consumer loans has fallen. Many investors have a negative outlook on Upstart for the near future, but its prospects are bright. Here's why this short-squeeze candidate could actually work out in the long run.
Investors who bet against a stock borrow the shares and sell them. They hope to buy back the shares at a lower price to return to the owner, pocketing the difference as profit. But if the shares rise instead of fall, they may have to buy back the shares at a higher price to limit their losses, pushing a stock price up even higher and forcing other short sellers to close their positions. When too many investors get caught short on a specific stock, the resulting short squeeze can result in astronomical moves, like the 1,063% increase of GameStop in January 2021.
Source Fool.com
